Some relief, but not enough

December 09, 2007

The slide of thousands of homeowners into foreclosure because of the subprime mortgage mess won't stop without strong intervention from the federal government. This crisis needs to be managed because it affects so many sectors of the economy and the few remedies proposed so far haven't made a dent.

President Bush's announcement last week to freeze interest rates for some homeowners provides needed relief over five years, but only for a select group, and it's voluntary. The agreement with a handful of lenders and investors targets homeowners who kept up their mortgage payments but risk default when their loans reset in 2008 and after - that's at least 500,000 borrowers.

About 19,000 Marylanders have subprime loans that will reset next year through 2010, a criterion for the freeze. But it's unclear how many of those mortgages originated between 2005 and last July, another qualifier under the president's plan. And for those already facing foreclosure, Mr. Bush's plan offers no help. In just the latter part of the spring, the number of Marylanders in the foreclosure process increased 64 percent over the same time last year, according to the Mortgage Bankers Association.

Maryland's efforts to help struggling borrowers hasn't provided much relief either, in part because many can't qualify for the help. And while the industry talks up its commitment to refinance individual subprime loans, the results have been pitiful: A mere 1 percent of them were modified, according to a Moody's study.

The administration's plan is basically a response to that grim reality. Investors who hold the subprime-mortgage-backed securities have threatened lawsuits, but the administration shouldn't be deterred from brokering other deals or intervening to minimize the next wave of problems. Consumer groups estimate that 2 million subprime borrowers are at risk of losing their homes in 2008.

From mortgage brokers to lenders, rating agencies to investment houses, everyone has a piece of the subprime problem. Borrowers can be faulted for taking on debt they couldn't afford to cash in on the housing boom. But an analysis of subprime borrowers for The Wall Street Journal found that plenty would have qualified for fixed-rate mortgages, which raises questions as to why they ended up with subprime loans.

And didn't investment banks contribute to the problem when they sold mortgage-backed securities even as the subprime market teetered? Investigations by the FBI, federal securities officials and several state attorneys general may offer some answers.

Meanwhile, Maryland officials are looking to expand refinancing options for homeowners in trouble, require personal notification of a filing of foreclosure and allow for more time to fight it. Those worthwhile efforts could prevent more Marylanders from losing their homes and reduce the numbers of foreclosures, but for those in trouble now, the winter looks mighty bleak.

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