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California Mortgage-Help Model Has Critics

President Bush's plan to freeze interest rates on some subprime loans might be popular with homeowners who signed on to risky teaser-rate loans that are about to reset, but plenty of other people are angry at what they see as a bailout of reckless banks and borrowers.

The White House plan is aimed at stemming foreclosures, which have shot up to record highs as the housing market has gone from boom to bust. Subprime borrowers have been hardest hit by the meltdown, with their initially low interest rates being reset to much higher rates.

In San Francisco, where the housing market is brutal, 88 percent of respondents to a San Francisco Chronicle poll said they disapprove of the Bush administration plan, which would freeze some adjustable mortgage rates for five years.

"Most of these people won't be able to afford these homes regardless of the case," said John Doxey, a self-employed training specialist.

Doxey is married, with two grown children who he said have been priced out of homes in the Bay Area. He thinks it is unfair to rescue borrowers who he believes paid too much for their homes, when more responsible people avoided loans with payments that would shoot up after a few years. He is not convinced the mortgage freeze is really intended to help homeowners.

"I think it was designed primarily to bail out large banks, mortgage companies, and financiers on Wall Street," he said.

Many economists said the program has so many restrictions that only a fraction of borrowers facing a mortgage reset will qualify for the freeze. They said the plan, which closely resembles a California plan unveiled two weeks ago, does little to solve the mortgage mess.

Under a separate federal plan, borrowers who do not qualify for a rate freeze could get help refinancing with their lenders or moving into loans secured by the Federal Housing Administration. But whether the Bush plan even gets off the ground is still in question.

Many investors in mortgage securities are likely to object to a rate freeze because they were promised that the interest rate would rise at a certain date, said Christopher Whalen, managing director of the Institutional Risk Analytics in Los Angeles. Freezing the loan would deprive them of that higher rate of return they expected, he said.

Whalen expects to see a flood of lawsuits over that aspect of the plan.

"I've got to tell you. I don't think that's going to survive. If it's challenged in the courts, it will get shot down," he said.

With additional reporting from The Associated Press.

Copyright 2023 NPR. To see more, visit https://www.npr.org.

Elaine Korry is an NPR contributor based in San Francisco. From August 2004-June 2007 she worked as an NPR senior reporter covering social policy for NPR, with a focus on education, and on the lives of the nation's most vulnerable citizens — the homeless, those living in poverty, working in low wage positions, and trying to find their way to a more stable life.

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