Bush to Announce ARM Loan Freeze Plan Thursday

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The Associated Press is reporting that President Bush will announce a plan on Thursday that will allow subprime adjustable rate mortgage holders to freeze their interest rate for up to five years. A move that the administration hopes will stem the wave of foreclosures currently battering the country’s housing market.

From the article:

The Bush administration has hammered out an agreement with industry to freeze interest rates for certain subprime mortgages for five years in an effort to combat a soaring tide of foreclosures, congressional aides said Wednesday.

[A] person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration plan is designed to deal with the crisis by allowing subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is occurring in many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

I’ll have commentary later; but let me ask one question: When you pull a band-aid off do you do it slowly or do you rip it off?