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What Bush's Plan Means for Homeowners

Jim Kingsland
Friday, 31 Aug 2007 | 11:34 AM ET

President Bush outlined reforms to help struggling subprime mortgage borrowers. This is the president's first formal response to the subprime housing crisis since the problem began snowballing this past February.

What is the President proposing?

The key part of Bush's proposal is legislation that would give the Federal Housing Administration (FHA) flexibility to help more subprime borrowers refinance their delinquent mortgages. The measure would give the FHA the power to guarantee subprime loans for people at least 90 days behind in mortgage payments.

Is this a bailout?

The President insists his program is not a bailout for banks, or borrowers but assistance to homeowners at risk of losing their homes to enable them to refinance their mortgages at more favorable terms.

Bush has previously stated that he is not in favor of a direct bailout of homeowners.

But Michael Panzner, Wall Street trader and author of Financial Armageddon, says the Bush plan is a bad idea.

"In reality, guaranteeing loans for homeowners who can’t afford the payments, encouraging mortgage-holders to hang on until they’ve been bled dry, and giving false hope to those who would be better off cutting their losses really only benefits one group," says Panzner. That group, he says, is "The lenders".

How many people will be helped by the president's program?

In contrast to the two million subprime mortgages with interest rates which will reset upwards in the next two years, the program's reach is small in scope.

The proposed changes in the FHA's mortgage insurance program would enable an additional 80,000 homeowners sign up for help beyond the 160,000 likely to use it next year.

Who is Eligible?

The president's program is aimed at helping low income homeowners with adjustable rate mortgages.

What are other features of the President's subprime intervention?

The President is pledging to work with Congress to reform the tax code to help troubled borrowers renegotiate loan terms.

The president is also calling for greater enforcement of predatory lending laws and tightening lending standards.

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