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WASHINGTON (AP) — The Bush administration and the mortgage industry, trying to combat a massive wave of foreclosures, are hammering out a proposal to temporarily freeze interest rates on certain troubled subprime mortgages. If adopted, it would be the biggest action taken to cope with the unfolding crisis.

The administration was still holding discussions on Friday, trying to work out details of the proposal, which could be unveiled as early as next week. Some indications of the outlines of the proposal may come in a speech Treasury Secretary Henry Paulson is scheduled to deliver to a national housing conference on Monday.

"We're moving as fast as we can move," Paulson said Friday in an interview with ABC News. "We're doing everything we can to deal with a complex problem and help the industry come together in a way which is going to be good for homeowners, communities and the economy overall."

The talks have involved all the federal banking regulators and major players in the mortgage industry such as Citigroup Inc., Wells Fargo & Co. and Countrywide Financial Corp.

The major thrust of the proposal would be to get lenders to extend for a number of years the lower, introductory rates that were offered on subprime mortgages, loans usually offered to borrowers with weak credit histories.

An estimated 2 million of those initial "teaser" rates are scheduled to reset to much higher levels by the end of next year, pushing the payment on a typical mortgage from $1,200 per month to $1,550, an increase of $350. The concern is that many homeowners will not be able to meet the higher payments, triggering hundreds of thousands of defaults.

That would dump even more unsold homes on an already glutted housing market, pushing home prices down further, jolting consumer confidence and raising the risks of a full-blown recession.

By offering a broad approach to extend the teaser rates for a certain period — officials and the industry are debating time periods of two to five years — it would allow homeowners to keep making payments while the housing industry regains its footing.

Once the industry stabilizes and home prices are no longer falling, it will be easier for homeowners to refinance their adjustable rate loans to more favorable fixed-rate mortgages.

Asked about the proposal on Friday, presidential press secretary Dana Perino said, "The president has been clear that no taxpayer money should be used for any sort of bailout."

The plan under consideration does not include any government funds, but it would mean losses for investors who purchased mortgage-backed securities because they would be getting a lower income stream reflecting the delay in having the introductory interest rates reset. But it would still represent more money than if the mortgage went into default.

The rising tide of defaults on subprime mortgages in recent months has already forced a number of major financial institutions to declare multibillion-dollar losses, a development that seriously roiled financial markets not only in the United States but also in Europe over the summer.

Economists on Friday generally praised the administration's effort, saying it should help stave off a potential recession in this country.

"This is a significant problem that could overwhelm the economy unless policymakers take action," said Mark Zandi, chief economist at Moody's Economy.com. "The economy is already on the brink of a recession."

David Wyss, an economist at Standard & Poor's, said offering a blanket approach should prompt more people to seek help.

"People don't want to tell there banker that they can't pay," he said. "But if you tell people in advance that this is what we will be able to do for you, you will get more people going to the banks ahead of time so they can be helped."

A survey by Moody's Investors Service found that only about 1 percent of the loans that reset in January, April and July had been modified by mortgage service firms.

Edward Yardeni, head of Yardeni Research, quipped that the program should be given a catchy title such as the "Teaser Freezer."

Democrats who have been highly critical of the administration for moving too slowly to confront the mortgage crisis were generally supportive Friday of the new proposal.

"This is the first time that the Bush administration is working towards a solution that meets the magnitude of the problem," said Sen. Charles Schumer, D-N.Y. But he said "the $64,000 dollar question" will be if investors will go along with the proposal.

Rep. Rahm Emanuel, D-Ill., called the proposal "an important building block ... to address the mortgage and credit crisis" while House Financial Services Committee Chairman Barney Frank, D-Mass., said he would sponsor legislation if needed to support a move to large-scale loan modifications.

The Rev. Jesse Jackson said the administration's plan did not go far enough. He said his Rainbow/PUSH Coalition will stage protest marches on Wall Street in New York and 50 other cities around the country on Dec. 10 to prod the government to play a bigger role similar to what was done during the savings and loan crisis of the early 1990s.

"This is an economic tsunami," Jackson said. "We need Wall Street and the banks and the government to work together for a public-private partnership like we did for the S&L crisis."

The administration is working through an industry coalition, dubbed Hope Now, to get the new program launched. Elements of the program are expected to be modeled after an approach put forward several months ago by Sheila Bair, the head of the Federal Deposit Insurance Corp. Last week, California announced a similar effort involving four major loan servicing companies.

Bair's plan would apply only for borrowers who are current on mortgage payments but unable to afford loans that reset to higher rates. "We need to have long-term sustainable modifications," Bair said at a news conference this week.

Critics said companies could face lawsuits if they permit modifications that are not in the best interest of investors. Supporters, however, argue investors would stand to benefit because they would avoid the cost of a foreclosure — estimated to be around $50,000 per loan.

You're fresh out of college and into your first real job – a position that affords you more than your weekly ration of Ramen noodles and macaroni and cheese. That's good news.

But if you are like the average American college graduate, over the last four, okay five, years you have slowly racked up about $19,000 worth of student debt (sometimes far more than this).

Meanwhile, you've also amassed X amount of dollars in credit card debt. (The average student graduates with just over $2,000 in credit card debt). Adding to your financial pressures, you have valid fears about Social Security running out before you even reach retirement age, and many of the companies you interviewed didn't even offer 401K plans, pensions, or any other form of retirement planning.

How can even begin to invest in your future?

Take on more debt. Mortgage debt.

President Bush has talked over the last several years about individual retirement plans and the importance of homeownership, noted by one White House Press release way back in 2004, "The President believes that homeownership is the cornerstone of America's vibrant communities and benefits individual families by building stability and long-term financial security." It also notes, "Americans should have the option of managing their own retirement."

Step back and assess this situation. You have thousands of dollars worth of debt. You are just starting out and you have no savings -- and your parents, coworkers, and even the President are telling you that you need to look into homeownership for long term financial stability, and stocks, bonds, and other investments for now and later.

But before you can buy a home, you must begin some sort of personal debt management.

Loan Consolidation
Depending on who you consolidate with, you may be able to do so free of charges. Consolidating means taking all of your eligible loans and putting them in one large loan with a lower, fixed rate. You should end up with a lower monthly payment and possibly a lower payout over the life of the loan. The downside -- you will probably be paying on the loan for longer, but for someone on a budget, this all makes sense.

As another word of caution. Be sure to check if there are penalities for early payoffs on your loans. With all types of -- loans, student, personal, mortgage -- it is possible for the lender to charge you penalty fees for paying off a loan early.

Credit Counseling
If your finances are especially tangled, then consulting a credit counselor can be a good investment in your future. They will be able to steer you in the right direction for you.

Taxes
Do not forget about deductions. Depending on your profession, a multitude of expenses can be deducted from your taxes. That is more money in your pocket to put into savings or to pay down a loan. Next year at tax time, be sure to hire yourself a professional who can advise you on all the ins and outs of this process.

Budget it Out
Living by a budget is not as hard as it seems. It requires organization and discipline. First, divide all of your expenses by due dates, and then by paycheck. (e.g. rent is due by the 3rd of the month, so you'll need to pay it with the paycheck you recieve on the 1st of each month.)

Start with the necessities (rent, electricity, car payment, etc.). After you see what items you MUST pay for, you can evaluate what you may be able to save or pay extra on loans.

Kill the Credit Cards
If you haven't discovered this yet, credit cards are the "devil." Some carry as much as 30 percent interest rates. That said, pay off the higher interest rate cards first. Get rid of cards that have annual fees. And don't simply pay the minimum each month -- that means you're only paying the interest.

If you are truly desperate to get rid of a ridiculous rate, consider this trick. New credit cards sometimes come with 0 percent interest for the first 6 months. Pay off your higher balance credit card with the new 0 percent interest card and then close and cut up the higher rate one. This will give you more time to pay down the balance, without throwing away money for interest.

Pay Yourself First
This statement never made sense to me -- until I got out of college. Yes, you have a ton of debt that needs to be paid back to people, but if you can set up a system for saving money -- in your budget -- then the extra money you have can be put into a savings fund. The rule of thumb for savings is this: save at least 10 percent each paycheck and try to have an account with enough money to pay 3 months worth of bills.

Sweat the Small Stuff
It's an old cliche that is really true, "A penny saved is a penny earned." Every penny, dime, and dollar counts. It is your money. Do you really need the Grande Frappuccino when you could get the Tall. Or how about brewing your own coffee at home? Small expenditures add up quickly, especially if you are living on a tight budget.

Debt Management can be a winning battle. Simply take an honest look at your finances, because it will be crucial in the coming years for you to have a strong foothold with which to make investments, create a retirement, and buy a home.

Published: December 31, 2007

After months of doing nothing, the Senate finally got its act together last week and passed two important housing bills in a single day!

Both pieces of legislation have potentially important roles to play in the mortgage industry's relief efforts for hundreds of thousands of homeowners now struggling with subprime adjustable-rate loans.

First the Senate passed the FHA Modernization Act -- a bill you've heard a lot about since September here at Realty Times, when the House passed its version by a big margin.

The Senate's bill is a little less generous than the House's -- FHA's new maximum mortgage amounts would be capped at $417,000, whereas the House's version allows loan amounts to rise according to local median price levels.

Under the House bill, FHA's limits would be well over $500,000 for much of California -- and over $700,000 for super-expensive local markets such as San Francisco and portions of the Bay area.

The final dollar limit will need to be hammered out in negotiations between the House and Senate early next year.

The House version also allows zero downpayments, while the Senate sets a 1 and a half percent minimum. Both would be improvements over the current 3 percent minimum.

The Senate also finally got around to passing the Mortgage Forgiveness Debt Relief Act that's been sitting on the agenda for months. That's the one that prohibits the IRS from demanding income taxes from financially-stressed borrowers whose lenders forgive a portion of their principal balance as part of a "short sale" or loan modification agreement.

The same bill extends the deductibility of private and FHA mortgage insurance premiums through 2010-another plus for homeowners trying to make ends meet in a tough market.

Better late than never seems to be this year's working motto in the Senate when it comes to dealing with the housing crisis.

But let's face it: Later IS better than never!

Published: December 21, 2007

WASHINGTON (AP) — Fannie Mae's CEO told shareholders Friday he does not expect a housing market recovery until late 2009, "at the earliest," and that the mortgage-finance company is strong enough to ride out the downturn.

Fannie Mae "will weather the turbulence of today's mortgage market and prosper when better conditions return," the president and CEO, Daniel Mudd, said as he and other top executives faced shareholders for the first time in three-and-a-half years at an annual meeting.

After posting a third-quarter loss of $1.4 billion, the largest U.S. buyer and guarantor of home mortgages recently cut its dividend and announced plans to sell $7 billion in preferred stock to raise capital to keep its cushion against risk within regulatory requirements.

One shareholder unconvinced by Mudd's assurances was investor activist Evelyn Y. Davis, who rose at the meeting and urged the government-sponsored company's directors to replace Mudd with Louis Freeh, the former FBI director elected to the Fannie board last spring.

Freeh is "the only one who would clean this up and really do this right," said Davis, whose mordant criticism of the company's leaders dominated much of the two-hour meeting.

Davis, who often peppers corporate CEOs with questions at shareholder meetings, said she would not vote for any of the directors standing for re-election other than Freeh. Freeh previously was general counsel and ethics officer of credit-card issuer MBNA Corp.

Despite Davis's protestations, the 12 Fannie directors — nine of whom came to the company after its accounting crisis in 2004 — were re-elected.

Mudd said Fannie Mae was "in a stronger position" because of the extensive changes to its management and operations over the past three years made in the wake of its $6.3 billion accounting scandal and with the recent steps taken to curb losses and buttress its finances.

He called them "extraordinary steps, but steps we believe are prudent."

The Fannie chief reaffirmed his gloomy forecast for the housing market, saying "This is the worst housing and mortgage market in recent memory, and we are still working our way to the bottom, in our view."

It was Washington-based Fannie Mae's first annual meeting since May 2004, five months before the accounting crisis erupted and led to the ouster of its highest executives, tarnished its reputation, and prompted federal regulators to fine it and impose restraints on its operations.

"We are rebuilding our culture," Chairman Stephen Ashley told the shareholders.

Fannie's stock price has been battered. On Friday, shares fell 8 cents to $34.68, or about 50 percent below the high point of $70.57 over the past year.

Friday's highly anticipated Employment report was expected to be the main event last week, and it did not disappoint. In November, the US economy added 94K new jobs, a little above the consensus forecast, although the revisions to prior months removed 44K jobs. As expected, the weak sectors included finance, real estate, and construction. In addition, the report contained bad news for mortgage markets on inflation, as average Hourly Earnings, a proxy for wage growth, increased at a sharp 3.8% annual rate. Mortgage markets lost ground after the news, mostly due to the implications for inflation, and mortgage rates finished the week modestly higher.

The Employment report was the final piece of major economic data before Tuesday's FOMC meeting. Investor expectations are now for about a 50% chance of a half point rate cut and a near certainty of at least a quarter point cut. Fed officials have repeatedly stated that the risks of slower economic growth have increased in recent weeks, but the specter of higher future inflation makes the Fed reluctant to cut rates too much.

On Thursday, the Bush administration unveiled a plan to assist as many as 1.2 million homeowners faced with the prospect of higher future mortgage rates. The goal is to help borrowers who are capable of paying at their current rates, but who would be unable to afford the payments when they reset higher. Included will be certain borrowers with adjustable-rate subprime loans on owner-occupied homes. Proposed remedies include freezing the current mortgage rate, refinancing the loan, or offering credit counseling. The initiative is expected to reduce the number of foreclosures and help stabilize home prices, which would provide a boost to the economy. The stock market reacted very favorably to the news, while the prospect of faster economic growth spooked mortgage market investors.

Courtesy of Ronald Struck at InvestRAM

www.investram.com