Subprime rescue plan: few get “rescued”

While it is good news that the government will not bail out lenders, President Bush’s announcement today of his plan to deal with subprime loans. As it turns out, the plan is pretty limited. The only borrowers who will be able to take advantage are those whose adjustable-rate mortgage has not yet adjusted. The plan excludes those already behind or who have fallen behind in the last year. In other words, the plan only helps a few borrowers, and none of those already in trouble.

As Elizabeth Warren points out: “. . . I find it ironic that the borrowers it would help most are those who are not already in default, i.e., the ones who have the least urgent need for relief. The lenders really need to address the problems of those whose rates have already re-set, and who may have already missed a payment or two. These folks are still headed for foreclosure.”

What this deal really appears to do is help some borrowers stay in homes they still will not be able to afford, pushing back the date of foreclosure for a lucky few, but not stopping it from coming. And what if it isn’t the ARM feature that is causing all the trouble? If it is not that simple, this plan will not really solve the root of the problem at all, which is lenders writing loans that they know borrowers cannot afford.

(P.S. - If you are trying to get help, make sure you dial the correct phone number, which is 1-888-995-HOPE.)

[photo: Athiphat Tanglukdee]