Will rate freeze buy enough time?

Saying he was offering a "sensible response to a serious problem," President Bush on Thursday outlined a plan that his administration said could help as many as 1.2 million subprime mortgage borrowers stay in their homes.

The plan is centered on an agreement hammered out with major lenders that allows borrowers to keep the low "teaser" rates on their adjustable-rate loans for five years rather than allowing them to reset soon at higher rates. By freezing rates, the borrowers and lenders would buy time to find permanent solutions to a problem that is causing a flood of foreclosures that some fear could throw the nation's economy into recession.

However, critics said the plan may only delay the inevitable for some borrowers, and that the actual number of people helped may not top 250,000.

Treasury Secretary Henry Paulson, Bush's point man in developing the plan, essentially admitted in his comments that the deal represents a play for time. "What five years does is it gives ... us as a country, a chance to work through this housing cycle," he said.

Anticipating criticism from some that the plan represents unprecedented government interference with mortgage contracts, and from others that it helps too few people, Bush said, "There is no perfect solution."

'Not nearly enough'

Half a million Americans are believed to be at risk of losing their homes if the $367 billion of mortgages that would normally reset to higher interest rates are allowed to do so over the next two years. The urgency of the problem was emphasized Thursday as the Mortgage Bankers Association reported that a record percentage of mortgages were in the process of being foreclosed in the third quarter, with late payments at their highest level in 21 years.

"This is just not nearly enough," he said.

Wells Fargo & Co., the biggest home lender in Minnesota, said it's preparing to contact its home-loan customers who might qualify for relief.

Wells, which joined in negotiating the White House proposal, is identifying home-loan customers for what the plan calls "fast-track" relief. They will get a call from the bank offering help, said Mary Coffin, Wells Fargo Home Mortgage executive vice president of loan servicing.

Coffin said the bank will target borrowers whose home loans represented 97 percent or more of the value of their property, have credit scores below 660 and seen less than a 10 percent improvement in their credit scores since their loans were taken out.

The Bush plan extends to adjustable-rate mortgages made between January 2005 and last July, if their initial reset would fall between January 2008 and July 2010. However, the mortgage holders cannot have fallen behind on their payments and the debt must be on a primary home.

Wells Fargo Home Mortgage Co-President Mike Heid said the most important thing troubled mortgage holders can do is call their lender.

"To receive the benefit of today's announcement or a case-by-case solution, consumers must reach out and contact their servicer," Heid said. "This is the single biggest obstacle we face in providing relief."

Julie Gugin, executive director of the Minnesota Home Ownership Center, believes that many of the people who need help haven't shown up at counseling centers yet.

"We maintain that the foreclosure crisis will be solved not with one tool but a variety," she said. "This freeze on interest rates is one tool that will help some people, but not all."

The plan also won't help lower-income people who are trapped in predatory loans that don't carry adjustable interest rates, said Mark Ireland, an attorney at the Foreclosure Relief Law Project in St. Paul.

"I feel left out, even though I have been affected by predatory lending," Colvin said.

He bought his home in 2005 and has twice refinanced in an effort to hang on to it. But the refinancings have raised his mortgage from $2,100 to $2,900 a month.

"I have a wife and six children who count on me," he said. He now works two jobs, and his wife just took on a second, part-time job. He thinks their efforts should count when someone's deciding who deserves help.

"I can make this month's payment, and possibly come up with January's," he said. "And then after that I don't know what I'm going to do."

Minnesota's two senators differed on how much help the president's plan will deliver.

U.S. Sen. Amy Klobuchar, D-Minn., said the agreement falls short because it lacks new borrower protections, including a requirement for more detailed explanations of adjustable mortgages before they're sold.

"I am pleased that after months of trying to wish the problem away the president has finally decided to come forward with a proposal for this problem," she said. "We must do more if we are truly going to address the housing crisis."

Lawsuits over false promises

Separately Thursday, Minnesota Attorney General Lori Swanson sued two companies she says are preying on desperate mortgage holders with bogus promises they can protect them from foreclosure.

At a news conference, Swanson announced lawsuits filed in Hennepin County Court against Foreclosure Assistance Solutions in Florida and American Housing Authority in Las Vegas.

"They took the money and failed to deliver," Swanson said.

Minnesota law prohibits mortgage foreclosure counselors from collecting any fee until they've delivered their services. The suits also allege consumer fraud and deceptive trade practices.

Foreclosure Assistance Solutions could not be reached for comment. At American Housing Authority, spokesman Brian Liang said the company will wait to comment.

"We don't do business in Minnesota, so we don't know where this is coming from," Liang said.