Bush Announces Five-Year Interest Rate Freeze Agreement

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President Bush released details of a new mortgage relief agreement on December 6, 2007. The plan provides a five-year interest rate freeze for certain borrowers who are current with their monthly payments but face unaffordable rate increases when their Adjustable Rate Mortgages

("ARMs") reset before July 31, 2010. The agreement resulted from weeks of negotiations between the White House, Treasury Department officials, mortgage lenders, and the Wall Street firms to whom mortgage debt has been sold. Bush described the plan not as a cure-all, but as an

effort to "limit the disruption" caused by the subprime lending crisis, reported The Washington Post.

While the accord promises some measure of relief, it does not provide a soft landing across the board. Describing the limited nature of the program, Bush said "[w]e should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they

could not afford," according to The New York Times.

At the moment, it appears that no tax dollars will be used to fund the program. Instead, the cost of freezing rates would be absorbed by lenders and investors, in addition to some homeowners who may be assessed fees to modify their loans. However, noting the voluntary nature of the

agreement, Mark Zandi, chief economist for Moody's Economy.com, observed that "[t]here's no stick in the plan; it depends on moral suasion." Despite the "handshake" agreement the plan represents between lenders and investors, critics note that the plan provides no guarantee against lawsuits.

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