Mortgage-foreclosure-bailout plan may help few

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If you're a homeowner who has an adjustable-rate mortgage, you may already have been disappointed to discover that your situation doesn't qualify for the ARM interest-rate freeze that was announced with much fanfare last week. You're not alone.Treasury Secretary Henry Paulson Jr., in his statement to the press, said that "up to" 1.2 million of the 1.8 million homeowners whose subprime ARMs are due to reset in 2008 and 2009 would be "eligible for fast-tracking into consideration for affordable refinanced or modified mortgages."The 1.2 million figure comes from Hope Now, a coalition of loan servicers, lender trade associations and credit-counseling organizations.But Paulson didn't quantify how many of those 1.2 million homeowners would be expected to refinance their existing mortgage or how many could qualify for the interest-rate freeze that's supposed to help them avoid foreclosure if they can't afford their mortgage payments at the reset interest rate.The question of how many homeowners could benefit is important because the plan has been put forward by the Bush administration as a "framework to help preserve communities by preventing foreclosure." If the actual number turns out to be far fewer than 1.2 million, that objective may not be achieved through this approach.In fact, the interest-rate freeze is targeted toward a relatively small group of homeowners whose situations meet very specific requirements.Criteria considered in qualifying for the freeze:-- Loan origination date.-- Date initial interest rate is scheduled to reset.-- Total equity homeowners have in the property.-- Homeowners' credit scores and other parameters.Analysts' estimates of how many loans may be eligible for the freeze fall into a broad range, from as few as 145,000, or 12 percent of the 1.2 million people the overall plan is supposed to help, to as many as 360,000, or 30 percent of that population. The lower figure comes from the Center for Responsible Lending, a nonprofit organization funded by a consortium of charitable foundations.In a statement released after the plan was announced, the center noted that most 2/28 mortgages originated in 2005 won't qualify because the interest rate will have reset before the plan becomes effective. Some of those homeowners likely will have already fallen behind on their payments, which is another disqualification. A 2/28 ARM begins with a low interest rate for the first two years, after which the rate is reset to a level that's typically much higher.The center also noted that payment-option ARMs might not be considered subprime loans in this context. A payment-option ARM allows the borrower to choose from among several payments each month. The minimum payment repays only some of the interest and none of the principal, which means the loan balance can increase over time and eventually the homeowner could be forced to make much bigger payments to pay off the loan.The center also observed that the new plan is voluntary on the part of lenders, loan servicers and investors, and that it contains neither incentives (apart from foreclosure avoidance) for those companies to implement it nor reporting mechanisms for them to track the outcomes.The voluntary nature of the program means the companies may not modify any more loans than they otherwise would have without the plan.Lenders have modified only relatively small numbers of loans since the mortgage crisis surfaced some months ago. HSBC, one of the largest home-loan lenders, had modified some 8,000 loans before an ARM reset as of Sept. 30, 2007, according to Kate Durham, a spokeswoman for the company. Countrywide, another of the largest lenders, had modified 20,000 loans as of Oct. 23, 2007, and expected to modify another 30,000 loans before the end of 2007, according to a company statement before Paulson's announcement.Representatives for investment advisers UBS, Deutsche Bank, Barclays Capital and Jefferies & Co., as well as the U.S. Treasury, did not respond to requests for more information about the discrepancies among these estimates. But UBS this week announced a further $10 billion writedown of its U.S. subprime mortgages. That suggests the company has a dim view of the likely return on those investments.Meanwhile, delinquency and foreclosure rates on residential properties have been on the rise. In the third quarter of 2007, payments were delinquent on 5.59 percent of all such outstanding loans, and foreclosures had been initiated on 1.69 percent of those loans, according to a statement from the Mortgage Bankers Association. Both figures were reported on a seasonally adjusted basis and had increased compared with the second quarter and prior-year third-quarter figures.X...X...XThe benchmark 30-year fixed-rate mortgage rose 17 basis points to 6.17 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.36 discount and origination points. One year ago, the mortgage index was 6.13 percent; four weeks ago, it was 6.32 percent.The benchmark 15-year fixed-rate mortgage rose 21 basis points to 5.89 percent. The benchmark 5/1 adjustable-rate mortgage rose 19 basis points to 6.29 percent.(Distributed by Scripps Howard News Service. Reach Marcie Geffner at editors(at)bankrate.com.)