WASHINGTON — The Bush administration's plan to stave off massive home foreclosures has been whittled down to a select slice of borrowers: those who are current on subprime hybrid mortgages made between Jan. 1, 2005 and July 31, 2007 which are to due to reset between January 2008 and July 2010.
Under the plan due to be unveiled Thursday by President Bush at the White House, eligible borrowers would be further weeded out to those who were not more than 60 days delinquent over the past year, have less than 3% equity in their homes, and are unable to afford an upward adjustment in their interest rate. These borrowers would see their rate frozen at the introductory price for five years, according to sources familiar with the negotiations.
Sources said the plan was narrowed to gain more industry support by limiting the number of loan modifications extended to borrowers who might be able to afford a reset.
The plan would also call on lenders and servicers to make new disclosures on 28 separate reporting items. Sources said those included how many modifications were conducted, their terms, and whether the modification included forgiven interest and forgiven principal.
It was not spelled out who the information would be reported to or whether it would be made public, though sources said they expect Treasury to collect the data and release it.
Servicers have been wary of liability from investors that may sue if mortgages are modified. Sources said they do not expect the Bush administration to offer any kind of safe harbor from litigation. Instead, the plan will emphasize that the administration believes the modifications are legal under existing pooling and servicing agreements.
Industry representatives are expected to back the plan, though many say they are still nervous about potential lawsuits.
Treasury Secretary Paulson has been leading the negotiations with servicers and regulators since a meeting last week to save borrowers from foreclosures when hybrid adjustable rate mortgages reset. Federal regulators are expected to attend President Bush's announcement tomorrow.