US mortgage aid plan to ease housing slump, but at a price

Dilshan Wirasekara, Chief Executive Officer of First Capital Treasuries PLC

WASHINGTON, Dec 6, 2007 (AFP) – A vast mortgage relief package brokered by the Bush administration is likely to ease the pain of the US housing slump but with an uncertain cost for markets and the financial system, analysts say. “That’s a loss for mortgage holders but it’s a smaller loss than would come from foreclosure,” he said. “That’s why these modifications are in the interest of both borrowers and lenders.” US President George W. Bush, who Thursday unveiled the measures agreed upon by lenders and investors, said the plan could help up to 1.2 million distressed homeowners at risk of foreclosure.

The plan devised by US Treasury officials with major lenders and investors would help struggling homeowners refinance subprime adjustable-rate home loans or freeze the current interest rates for five years.

Subprime loans were doled out to Americans with patchy credit during the housing boom which ran out of steam in early 2006.

The program was unveiled amid fears that a rising tide of home-loan defaults could have a cascading economic impact.

“There is a clear collective interest in arresting a vicious downward spiral which has been gaining momentum in recent months,” said economist Brian Bethune at the research