WASHINGTON – The Bush administration today will propose a set of policies meant to help ease the wave of mortgage defaults, according to senior administration officials. It is the administration’s first broad effort to deal with rising levels of home foreclosures, which are widely forecast to increase further in the coming year.
President Bush and Treasury Secretary Henry M. Paulson Jr. will propose changes to the Federal Housing Administration mortgage insurance program that would allow more people to refinance with FHA insurance if they have fallen behind on adjustable-rate mortgages, which offer low introductory rates that can later rise, sometimes doubling a monthly mortgage payment.
Currently, people who have missed mortgage payments are ineligible for FHA insurance. In the president’s plan, they would be eligible so long as they fell behind only because their required payment adjusted to a higher level, as is now happening with many mortgages issued from 2004 to 2006. The officials said the administration can make this change without congressional approval, but other details will require action on Capitol Hill.
Officials expect that 2 million of these types of mortgages made to risky, or subprime, borrowers will adjust in the next two years, with a total value of more than $500 billion.
A senior official estimated that the change would allow an extra 80,000 homeowners to receive a federally insured mortgage in 2008 on top of the 160,000 already forecast to use the program. The official spoke on condition of anonymity because the plan was not yet formally announced.
The FHA does not make loans but insures them, which helps lower the cost of mortgages for borrowers and makes the loans less risky for lenders.