WASHINGTON (Reuters) - Democratic presidential hopeful Hillary Clinton proposed on Monday a 90-day moratorium on home foreclosures to give financially troubled borrowers time to work with lenders and avoid losing their homes.
The New York senator outlined the proposal in a letter to U.S. Treasury Secretary Henry Paulson, who is trying to broker a deal with mortgage lenders that would help troubled borrowers.
The crisis surrounding subprime mortgages extended to borrowers with spotty credit has unnerved financial markets and could deepen a slump in the U.S. housing market that some economists fear has pushed the economy close to recession.
“It is critical that we address this crisis,” Clinton said in a letter to Paulson. “The administration and the mortgage industry must reach agreement that matches the scale of the problem. If you produce an inadequate agreement, or fail outright, the cost to our economy will be incalculable.”
The U.S. Treasury Department has been pushing the mortgage industry to agree to temporarily freeze interest rates for some borrowers who took out loans with low teaser rates that will soon be resetting much higher. More than 2 million borrowers are estimated to be facing rate resets.
Clinton said any agreement should include a moratorium on foreclosures of at least 90 days on owner-occupied homes with subprime mortgages. Any agreement should also include a rate freeze on adjustable mortgages of at least five years or until the loan is converted into a fixed-rate mortgage, she said.
Clinton said the freeze would give the housing market time to stabilize and homeowners time to build equity. She also called on the mortgage industry to provide regular reports on the number of mortgages they have modified.
If the administration fails to secure an agreement that includes those provisions, Clinton said she would push for legislation that would allow lenders to convert subprime mortgages into more affordable loans without permission of investors.
She also called for a $5 billion fund to help hard-hit communities and homeowners cope with the foreclosure crisis.
The subprime mortgage crisis has hit some states harder than others, including Florida, Nevada, California, Michigan and Ohio — key states in next year’s presidential elections.