World Economic

WASHINGTON — Falling short-term interest rates have diminished the need for a much-heralded government plan to help homeowners whose mortgages were due to reset at more expensive levels.

That’s not necessarily bad news for homeowners, industry executives say, because mortgage rates are not jumping up as dramatically as policymakers had feared last year. Foreclosures, however, are continuing to rise — reflecting loose lending standards and risky mortgages prevalent at the height of the housing boom, which has since turned to bust.

Statistics released Thursday by Hope Now, a Bush administration-organized mortgage industry effort to help at-risk borrowers, show that among a sample of 140,000 subprime mortgages with two or three-year introductory rates that adjusted to higher levels in January or February, about 4 percent — or 5,600 — were modified.

About 60 percent of those modifications were for five years or longer — the length of the interest rate freeze President Bush announced in December.
A series of interest rate cuts by the Federal Reserve has led to a decline in a key interest rate used to set rates on subprime loans.

A year ago, that rate, known as the London Interbank Offered Rate, was at 5.36 percent. By Wednesday, it had fallen to 2.68 percent, according to Bankrate.com.

Mortgage industry executives say that’s good for borrowers payday loans faxless payday loan. "These homeowners’ monthly payments are holding steady and there is no payment shock," Faith Schwartz, executive director of the Hope Now effort, said.

Far more subprime loans — about 60,000, or 43 percent of the sample — were paid off through a refinancing or sale, the Hope Now group said.

Consumer groups, however, say rising foreclosures stem from the prevalence of high-rate loans that were designed with little regard for borrowers’ ability to pay, not just from rate adjustments.

More than 223,000 homes across the nation received a foreclosure-related notice in February, according to Irvine, Calif-based foreclosure listing service RealtyTrac Inc, up 60 percent from a year earlier.

In Senate testimony Thursday, former Treasury Secretary Lawrence Summers predicted more than 2 million foreclosures are coming over the next two years, and up to 15 million homeowners will owe more than their house is worth, as house prices continue to fall.

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