WASHINGTON (Reuters) - Treasury Undersecretary Robert Steel said on Thursday that foreclosure rates on American homes will be higher than usual for the next two years as will the number of homeowners facing hardship.
In prepared remarks to the Senate Banking Committee, Steel noted the risks a housing downturn poses to growth, but said the U.S. economy was basically strong.
“Over the course of the next two years, we expect the foreclosure rate to remain elevated above its historic level,” Steel said, adding that “relaxed” standards for making loans in recent years meant “the number of homeowners facing hardship will be higher than during other recent housing downturns.”
The HOPE Now alliance, which the Treasury helped broker to bring lenders and distressed homeowners together in an effort to find ways to avoid people losing their homes when adjustable mortgages “reset” at higher rates, was making progress, Steel said.
He said the rate of modifications to subprime loans -- those frequently made at adjustable rates to less creditworthy borrowers -- had tripled from the third quarter to the fourth quarter of 2007.
Rising rates of foreclosure on homes has become a hot topic with presidential elections approaching, and Democratic lawmakers are pushing for a larger-scale effort to aid people being forced to give up their homes.
Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat who campaigned unsuccessfully for the Democratic presidential nomination, is urging a rescue plan that harkens back to the one used during the savings and loan crisis of the late 1980s and 1990s.
It would involve setting up a home loan corporation at a cost to the taxpayers estimated up to $20 billion that would buy the most at-risk mortgages and refinance them to try to keep homeowners in their homes.
That is unlikely to get backing from the Bush administration, which favors a wholly private-enterprise effort to try to get lenders and borrowers together earlier on in the foreclosure process so that they can sort out ways of refinancing without involving public money.
Reporting by Glenn Somerville; editing by Gary Crosse