Plan freezes mortgage loan rates

Del. officials praise accord, still fear tide of foreclosuresBy LESLIE A. PAPPAS, The News Journal
Posted Thursday, December 6, 2007Read Comments-->12/06/2007 -->
A federal proposal to freeze interest rates on certain subprime mortgages drew cheers from members of Delaware's foreclosure task force Wednesday, but in the same breath they cautioned it would only be the first step to bringing the state's looming foreclosure problem under control.
The Bush administration is expected to detail today an agreement between the banking industry and federal regulators to set a five-year moratorium on resets of certain subprime adjustable rate mortgages. The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.
The agreement will apply to borrowers who took out loans between January 2005 and July 30, 2007, with adjustable rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010, according to the Associated Press.
"It's a positive thing, particularly for the future," said Lt. Gov. John Carney, who announced Delaware's foreclosure task force at the end of October. "The thing that we're really afraid of is this increasing slope of foreclosures. ... The biggest concern is that we get snowed under with a number that we're just not able to handle. And to a certain extent, that is happening."
Foreclosure filings in Delaware broke records in the last fiscal year and continue to rise. Housing counselors are overburdened with new cases, they have told the task force, and they worry that as mortgages with low "teaser" rates begin to reset in the coming year, more homeowners will fall into default.
"I just hope this [the freeze] is the first of a larger package," said Delaware Deputy Bank Commissioner Gerry Kelly.
Kelly said he would have preferred a seven-year moratorium that included borrowers whose rates have already gone up.
Freezing rates on the segment of mortgages at high risk of default could give struggling borrowers time to find a better job, refinance or sell the home without having to go into foreclosure, said Camilla Conlon, president of the Delaware Association of Realtors and a task force member. "Five years is enough time for folks to recover from these circumstances."
Conlon also hoped the five-year freeze, which she called a much-needed "shot in the arm," would put confidence back into Delaware's housing market.
Overall, Delaware's housing market still remains stronger than most. Wilmington was even highlighted in this month's issue of Money magazine as one of the last "red-hot housing markets," experiencing a 5.2 percent increase in home prices in the past year.
But in some neighborhoods, delinquencies and foreclosures are taking a toll.
Delaware Secretary of Housing Sandy Johnson called the five-year freeze a "silver bullet" that would help stem the rising number of foreclosures.
"But we're going to need several silver bullets for this stuff," said Johnson, a task force member. "Maybe after bullets three and four ... we'll have some breathing room."
There were 3,452 seriously delinquent mortgages in Delaware at the end of 2007's second quarter, with slightly more than half (51 percent) subprime, the Delaware State Housing Authority reported to the task force in November. Of the 1,776 subprime loans that were seriously delinquent, two-thirds were adjustable-rate mortgages.
Judging by the number of subprime mortgages in Delaware, anywhere from 6,500 to 10,000 borrowers could be eligible for the freeze, Johnson said.
"Anything that can ... give us assistance from a federal level would be a great benefit," said task force member Ken Smith, director of the Delaware Housing Coalition. Smith's only objection would be if the agreement somehow prevented the state task force from continuing its work.
"If any of these national agreements pre-empts the ability of the states to do things, that would be a concern," Smith said. "There's some movement afoot to include language in these measures that would override state actions, and many of us would not like to see that happen."
Delaware Rep. Mike Castle said the freeze would give greater security to the nation's housing market and would help struggling borrowers.
"The argument you may get is from those investors who feel that they were going to get a higher return on their dollar and are not getting it now," said Castle.
Castle has introduced legislation to protect lenders who renegotiate loans from being sued by investors, legislation that is scheduled to be considered during a House Committee on Financial Services hearing today.