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Show DAILY HERALD 2007 Saturday, Decembers, Subprime Suhprimes soar In slumping market Continued from B6 ber period set a record. Behind The number of subprime loans offered to borrowers with below those foreclosures is a steep average credit has increased slump in the housing market. nearly 15 times since 1998. After a five-yeboom, home sales are plunging and prices Loans, quarterly 6 million declining in many parts of the Q2 2007 country. More foreclosures 6.21n on M mean more homes dumped on a glutted market. The housing slump has caused multMlion-dolla- r losses at some of the largest banks and investment firms and roiled I 01 1998 financial markets. All these 421,330 problems are expected to drag down economic growth to near recession levels over the final r- TO D2 98 Tj6 W three months of this year and into early 2008. AP SOURCE: Mortgage Bankets The administration hopes the Association rate freeze will slow the pace of foreclosures, buying time for weeks. the housing market to stabilize Sea Charles Schumer, who and begin to recover. A rehas sought a bolder governbound in sales and home prices ment response, said Bush's will allow struggling homeown- mortgage freeze may help but ers to switch their current adjis not a panacea. "There are ustable-rate mortgages to more too many families who have affordable fixed-rat- e loans. been left out, too much left up At his White House anto the voluntary willingness of the private sector and too little nouncement, Bush insisted the country's underlying economic disclosure and transparency fundamentals were sound. But to ensure that families who do critics said his administration qualify are teing helped," said was slow in reacting to the Schumer, The administration said its housing crisis and the delay had worsened the slump. Some plan could help 1.2 million hocontended Bush's plan was too meowners either through a freeze or quicker ways to assist narrowly focused. Democratic presidential homeowners refinance. The candidate John Edwards cited Center for Responsible Lendhis proposal for a freeze on ing, which battles predatory any more foreclosures. That is lending, estimated that only intended to pressure lenders to 145,000 homeowners would renegotiate. A rival. New York qualify for the freeze because the criteria are too narrow. Sea Hillary Rodham Clinton, said the plan excludes 400,000 Bush said homeowners confamilies whose mortgages cerned about mortgages that are resetting in the final three are about to jump up should months of this year; the proseek help before they fall behind in their payments. For gram only will cover mortgages that are resetting from Jan. starters, they can call a hot line 1, 2008, through July 31, 2010. Bush pointed blame at the An estimated 1.8 million Democratic-controlleConhomes have subprime mortgages that are scheduled to reset gress. Lawmakers, he said, in the next two years. Those have failed to act on various housing proposals from the mortgages were initially taken out with rates of around 7 administratioa One would expand the ability of the Federal percent to 8 percent. Under the Housing Administration to help scheduled increases, the rates borlow and moderate-incom- e will climb as high as 11 percent in the months ahead without the rowers. But Senate Majority freeze. That increase could add Leader Harry Reid, said Republicans have blocked an additional $350 to a typical bills monthly mortgage payment of efforts to get House-passe$1,200. through the Senate in recent Hie lowdown on new mortgage rate ft'eezc Kathy M. Kristoff IOS ANGELES TIMES ar I 'I i 85 The U.S. Treasury and a consortium of lenders and investors Thursday announced a plan to bail out some sub-priborrowers. Who qualifies for the relief, and what type of help should they expect? Here are some answers. Question: What happened? Answer: In an effort to avoid a projected tidal wave of foreclosures as 1.8 million subprime mortgages reset to higher interest rates over the next two years, regulators and industry came together to work out an industry-wid- e plan to temporarily freeze the interest d of these loans. rates on about Q: Why are only a third of the loans subject to a rate freeze? A: The consortium that negotiated the deal believes that about 600,000 borrowers can refinance without trouble and another 600,000 can't make their payments even at current rates, so they're likely to need individual help if they're going to avoid foreclosure. The remaine ing segment qualifies for the plan. one-thir- rate-freez- the plan Q: What does do? A: It freezes the borrower's mortgage rate at its current level for five years. After that, the borrower would need to pay at the higher rate, get a new loan-oas originally contracted. Q: Why five years? A: Promoters of the plan believe that period will give borrowers time to build credit and equity, and thus be in a better position to refinance. It also gives the real estate market time to recover, so, presumably borrowers who want to refinance will not get rejected for having too little equity in their homes. Q: Who qualifies for the rate freeze? A: To qualify, the residence must be The borrower must be no more than 30 days late on their mortgage payments and have a FICO credit score of 660 or less. The loan must have been originated between January 2005 r owner-occupie- he were paying interest only. If he must pay both principal and interest, he would now be paying $598.90. If this borrower could not qualify for the rate freeze, and his rate reset Thursday, his monthly payment would jump to $908.24, paying principle and interest, Lazerson added. Q: What about people who have to refinance? What are they facing in terms of rates? A: The good news is that rates have declined sharply in recent months. So, a fixed FHA borrower could get a loan at 5.875 percent Thursday, said Lazerson. However, the borrower would have to pay closing costs and mortgage insurance. FHA mortgage insurance comes in two parts a 1.5 percent fee and monthly mortgage paid insurance payments of 0.5 percent of the loan amount. Lazerson figures that combination of FHA insurclosing costs and ance premiums would run 3.5 percent and be added to the balance of the loan. So, our hypothetical borrower would now have a $103,500 loan. His monthly payment would work out to $612.24 in principal and interest, plus $43.12 in principal now? mortgage insurance payments. Total: A: The industry-wid- e $653.36. That does not include impounds plan is Silent on this issue, which means its likely to be for taxes and property insurance, howdecided on a case-b- y case basis. ever. .; ,; Q: I have a prepayment penalty on my Q: Can you explain how the numbers work out on a real loan? current loan, which is why I haven't refiA: Naturally, the details vary by loan. nanced. Will lenders forgive those penalties under this plan? However, Jeff Lazerson, president of e A: Lenders are being encouraged to Mortgage Grader, said the typical loan was made at a teaser rate of waive prepayment penalties, or stall about 5.99 percent. Reset rates would be refinances until they expire, but they are not compelled to. Lenders will decide on based on an index, such as the London case basis. a case-bInterbank Offered Rate (which ThursQ: How do I find out if I qualify for a day was at 4.423 percent), plus a margin rate freeze or some other help? of anywhere from 4 to 8 percentage A: Call your lender. "If I were a borpoints. For purposes of example, Lazerrower in this situation, I would call early son figures this loan would have a 5.99 and often because the squeaky wheel percentage point margin, bringing the total rate to 10.413 percent. gets attention and lenders are going to On a $100,000 loan, this borrower be overwhelmed by the volume of this," Lazerson said. would currently be paying $499.16, if and July 2007 and have an initial reset date between January 2008 and July 2010. The borrower must have less than 3 percent equity in the home. Q: What if I have a better credit score or more equity in my home? A: You probably dont qualify because lenders believe you can refinance. Those who can qualify for a new loan, either through a private lender or the Federal Housing Administration, are expected to do so. ' Q: If I meet all the criteria, what do I have to do to get the rate freeze? A: Call your lender. Lenders are attempting to identify customers who qualify and proactively contact them. But, they urge borrowers to call because not all the necessary information is in their files. Q: Can my lender refuse to freeze my rate, if I qualify under this plan? A: Yes. This is an industry initiative, not a law. Participation is recommended but not mandatory. If your lender is not participating, your best option might be to try to refinance your loan. Q: I've been paying interest only during the teaser period. Does my payment freeze too, or do I have to start paying 30-ye- ar up-fro- nt up-fro- nt -- sub-prim- y -- d d Coal PacifiCorp's only short-teroption for meeting power needs is to expand or add natural Continued from B6 d plants and seek more kelsen said the utility's strategic wind power, he said. Both are d more costly than plan was "met with a resounding thud" in both Utah and Pacif iCorp views the threat Oregoa of carbon emission regulation "We're heavily invested in coal because coal has been as a risk that could apply retrod the best deal for customers," actively to any plants it builds, he said. Eskelsen told The Associated "It clearly shows the utility Press on Friday. "Now we're is paying attention to what's in a position where we have to start building major projects going on in the market and conagain, and we have to pick the sumer demand," Tim Wagner, least costly and risky option for an energy expert with the Utah customers." chapter of the Sierra Club, told The Salt Lake Tribune. "It may Eskelsen said Pacif iCorp is willing to yield to opposiend up forcing them to divertion over coal power from sify with more renewables." . The decision also could lessen interest or groups regulators, a growing air quality problem politicians, "but people have to understand the cost issues of along Utah's heavily populated Wasatch Front, he said. that." gas-fire- coal-fire- gen-erati- coal-fire- ht Support tlie future of your community. give the gift of literacy. V 1 For more Information 3miBifc Herald . uu econ- r "The objective would be to avoid a further deepening of already serious problems in housing markets," said Stuart Gabriel, director of the Richard S. Ziman Center for Real Estate at Anderson School of Management at the University of California, Los Angeles. "What's going on here is concern that this issue is big, broad and of such significant consequence that it could seriously hurt the U.S. economy." That's little consolation to Johnson. "You see the guy making $38,000 and every weekend he's bringing new toys into the house, a new TV or a new couch," Johnson said. "We all end up suffering for it, whether it's the loss of community or destruction of the first-orde- when property values settle at their natural levels, keeping many would-b- e buyers locked out of the market in the meantime. "I'm not asking for Armageddon," said Matthew televia sion writer living in Hermosa Beach, Calif. "I'm just saying, 'Let the market go to where it should go.' " Housing and finance experts sympathize with such arguments. "I definitely see where these people are coming from," said Tracey Seslen, an assistant professor of finance at Marshall School of Business at the University of Southern California. But she and others say there are no ideal public-policop y LlADRfS I feel pretty 344-292- 3 20 BREAK da -- c (save up to $3,400) f in ..hi' ii t -- I LOSE Jewelers I The Chance of a lifetime! Receive a FREE AMERICAN MADE Pool Table valued at $3,995 with the purchase of a Sundance or Phoenix spa. Call us for details. Buy AMERICAN made!! l 928 Smrth 1950 Wmrt SwlnqvillB (behind holiday music and help downturn that drags the omy into recession. All Spas are a Lnjcy great -- tions in the subprime crisis, and the overriding goal is to head off a sharper housing $600,000 home." The worst potential consequence, critics' say, is if the government's actions prop up a home market that easy financing helped inflate. That, they say, would delay the eventual day of reckoning SPAS & BILLIARDS GET A lot. -IKtwii McDonald HosCHAirros what kind of an obligation they were entering into?" said Michael Darda, chief Continued from B6 economist at MKM Partners, a misled by mortgage salesbrokerage company in Greenwich, Cona "I understand people into taking on high-ris- k loans. there are sleazy people in the mortgage area, but what I Supporters also say the program is needed to keep the don't hear from politicians is: 'Does the individual bear any housing crisis from sending the country's economy into a responsibility for this problem?"" recessioa A majority of the Ed Skebe of Manhattan country's politicians appear to be in favor of the plan, with Beach, Calif., would agree some saying it doesn't go far that even if some people were duped by shady mortgage enough. But the undercurrent of brokers or loan of ficers, antagonism to the program is many home buyers knew they couldn't afford the homes strong and is given support by an economic principle that they were buying and rolled the dice anyway in hopes that says people tend to act reckthe boom had enough life to lessly if they know they'll be protected from the conseshower them with profits. "They hurt everyone. They quences. By that logic, aiding borrowers who are in trouble drove the prices up," said now will only encourage fuSkebe, a program comture borrowers to take on too manager at an much risk. pany who said the booming "Should you and I be bailing housing market prevented him out people who lied about their from trading up to a larger home. "It's hard for me to incomes, bit off more than believe that someone didn't they could chew or were too lazy or ignorant to understand realize they couldn't afford a TA KB unmi A Irate Onlv in CrmmiTRFP Soiiarp . 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