Are either of these good ideas?

Bush plan will freeze subprime rates
The agreement will freeze certain subprime mortgages for 5 years, a compromise with the mortgage industry and banking regulators.

Clinton calls for subprime rate freeze
The presidential candidate's proposal covers borrowers who are both current and behind on their mortgage payments

Senator Hillary Clinton spelled out the details of her subprime bailout plan Wednesday, calling for a 90-day moratorium on foreclosures and a five-year freeze on the interest rates of adjustable rate mortgages (ARMs).

In August, the democratic presidential hopeful asked legislators to ban prepayment penalties on mortgages, but her new plan goes much further, and bears similarities to other proposals, including one expected to be offered by the Bush administration soon.

Clinton had already outlined her proposal in a letter to Paulson on Monday - the letter was posted onto her Web site - but on Wednesday she formally unveiled the comprehensive plan.

The rate freeze proposal would halt interest on ARMs from resetting above their low, introductory rates. Those resets can turn barely affordable mortgages into hopelessly unaffordable ones for many home owners.

"The average reset will increase the monthly payment by 30 percent to 40 percent," she said. A freeze would afford hard-pressed borrowers relief until the ARMs could be converted into fixed rate loans.

Clinton's freeze plan, which she unveiled at the Nasdaq Stock Market in New York, applies only to owner-occupiers, not real estate investors. Otherwise, no class or time frame of subprime ARMs issued was mentioned.

Interest rates on resetting ARMs can jump from 7 percent or less to 10 percent or more, costing borrowers hundred of dollars a month more.

The Clinton freeze proposal will cover both borrowers who are current with their ARM payments and ones who have fallen behind.

The 90-day foreclosure moratorium is meant to give lenders and mortgage servicers time to sort through the large numbers of borrowers who may benefit from the freeze, so none will lose their homes simply because servicers do not have the systems and staff in place to reach all the affected borrowers.

In addition to these main provisions, the Clinton plan also would require that lenders provide ongoing status reports on how many mortgages they modify and the types of modifications made. Earlier this year, Moody's revealed that servicers had modified few of the resetting subprime ARMs.

Despite congressional scrutiny, media coverage and pressure from community advocates, "the industry has modified only 1 percent of at-risk mortgages so far this year," said Clinton. According to Clinton, we cannot take the lending industry at its word that it will follow through on agreements to convert loans expeditiously.

The senator promised that, if her provisions are not included in an agreement Paulson reaches with lenders, she will push for legislation that will enable loans to be reworked without first obtaining the permission of investors.

Servicers are reluctant to rework loans due to contractual obligations with the actual owners of the liens, the investors. Protecting servicers against investor lawsuits may encourage them to modify more mortgages for home owners in distress.

Clinton's proposal also calls for up to $5 billion in funds to help hard-hit communities and individual borrowers withstand the foreclosure crisis. Part of the money would go to financial counseling, which has proven successful in helping borrowers work through solutions with lenders.

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.

These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.

Another 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 said that President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with officials of the mortgage industry.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes - as a way to make sure that the break is not granted to real estate speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures that are feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.

The higher rates in many cases will boost monthly payments by as much as 30 percent, making it extremely difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.

The plan represents an about-face for Paulson, who until recently had insisted that the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced that the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.

Under the typical subprime loan, those offered to borrowers with spotty credit histories, the rates for the first two years were at levels around 7 percent to 9 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.

For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.

The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.

The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.

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.

The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.

WWYD? What would you do?