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The U.S. mortgage industry has agreed to freeze interest rates for some homeowners who had been facing default because of adjustable rate mortgages. VOA White House Correspondent Scott Stearns reports, the Bush administration negotiated the deal in hopes of heading off further turmoil in the U.S. housing sector that has disrupted worldwide financial markets.
With U.S. home foreclosures at an all-time high, President Bush outlined a private sector deal that could help more than one million Americans who have been faced with the prospect of losing their homes next year.
The agreement concerns so-called subprime mortgages that target borrowers with poor credit. Those loans begin with low introductory interest rates and many are soon to re-set bringing sharply higher payments and increasing the odds of default.
"Some lenders made loans that borrowers did not understand, especially in the sub-prime sector. Some borrowers took out loans they knew they could not afford. And to compound the problem, many mortgages are packaged into securities and sold to investors around the world," President Bush said.
Concern about American subprime home loan defaults have spread uncertainty throughout broader financial markets.
The agreement between banking regulators and lenders applies only to homeowners who have been making regular payments at the starter rates but can not make the higher payments. It allows them to refinance with a new private mortgage, move that loan to a government-secured account, or freeze their current rates for up to five years.
President Bush made clear the action is meant to benefit those most at risk not banks that made bad loans.
"We should not bail-out lenders, real estate speculators, or those who made the reckless decision to buy a home they knew they could never afford. Yet there are some responsible homeowners who could avoid foreclosure with some assistance," he said.
White House officials say the Federal Reserve intends to announce further changes later this month. President Bush wants Congress to increase access to government-insured loans by lowering down payment requirements.
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