White House Subprime Plan Not Embraced by All

The Bush administration and the mortgage industry in unveiling a plan to help more than one million struggling homeowners have embarked on a controversial project: choosing winners and losers from the rubble of the subprime-mortgage meltdown. 
 
Under the deal, formally released yesterday, the industry would voluntarily help as many as 1.2 million homeowners who are heading for trouble paying their subprime mortgages but aren't yet lost causes. For some homeowners, loan-servicing companies will agree to freeze mortgages at their low introductory rates. In other cases, credit counselors or loan servicers will walk mortgage holders through refinancing processes. 
 
The deal won't provide relief to many subprime-mortgage holders, however: These include borrowers who are now in foreclosure, have already refinanced their homes or are more than 60 days delinquent on more than one payment over the past year. In some cases, people with good credit scores will be excluded. Also left out are those deemed able to afford the higher interest rates scheduled to replace their introductory rates over the next two years. 
 
The initiative could help stabilize falling home prices and rising foreclosure rates, buoy the mortgage market and provide a modicum of comfort to investors watching the housing crisis bleed into the broader economy. 
 
But it also sets what promises to become a battle line as the subprime crisis plays out over the coming election year. Some critics, especially Democrats, say the plan doesn't go far enough to protect vulnerable homeowners against foreclosure. Others, including some homeowners, as well as those who have watched from the sidelines as home prices have soared in recent years, charge that the plan amounts to a bailout for financially reckless borrowers. 
 
The agreement covers homeowners who have taken out subprime mortgages, those offered typically to high-risk borrowers. About 1.8 million subprime loans are adjustable-rate mortgages, or ARMs, that carry low introductory rates that are set to expire in the next two years and adjust upward. These ballooning mortgage payments would threaten to produce a wave of foreclosures and a spiral of lower home prices and tightening credit. 
 
The housing crisis is spreading beyond this relatively small subprime universe, causing turmoil on Wall Street and raising the specter of an economic slowdown. In the third quarter, home foreclosures hit their highest rate since at least 1972, according to the Mortgage Bankers Association. Prime adjustable-rate loans -- not covered in the industry's rescue plan -- accounted for 18.7% of mortgages starting foreclosure, the second-highest proportion behind subprime adjustable-rate loans. The overall delinquency rate is the highest since 1986, with some 2.64 million borrowers nationwide behind on payments for their first-lien mortgages for residences. 
 
Nouriel Roubini, an economist at New York University and chairman of research firm Roubini Global Economics, calls the plan "a step in the right direction." But Mr. Roubini says the plan won't turn things around. "Over the next three years, we're still going to see a housing recession that leads to defaults and foreclosures," he predicts. "Anything we do now is on the margins." 
 
The agreement, which was hammered out with investors and mortgage companies under the auspices of the Treasury Department, is the centerpiece of the Bush administration's free-market approach to the mortgage crisis and may be as far as it is willing to go in the direction of a full bailout. But pressure is likely to increase as housing and the economy move to the top of the presidential-election agenda. Candidates such as Hillary Clinton, Barack Obama and John Edwards have come out with their own plans, all of which go further than the White House is willing to go so fa