Bush to Announce Five-Year ARM Freeze

President Bush is expected to announce a plan at 1:40 p.m. EST Thursday that will help homeowners struggling with adjustable-rate mortgages hold onto their homes. Interest rates on 1.5 million mortgages are expected to "reset" upward over the next year. "We have got to do something drastic, and we have to do something quickly," said Rep. Elton Gallegly (R-CA). "I don't like the government getting involved in the private sector, but we have potential problems we are already seeing come to pass." The plan, which is the product of an agreement between loan servicers and investors holding mortgage debt, will freeze the introductory "teaser" rate for certain borrowers for five years. It is geared toward borrowers who are current on their payments but would be unable to pay a higher rate following reset (full story). The plan is designed to assist homeowners, not lenders or speculators (recipients will have to live in their homes), but is already stirring dissent among homeowners who will not be eligible. Borrowers who would be able to pay reset rates might also benefit if the White House succeeds in swaying Congress to alter tax law to permit state and local governments to use more tax-exempt bond programs to fund refinancings.

Sources: Bloomberg, Reuters, Wall Street Journal

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