Major lenders move to offer subprime help

Nearly 2 million ARMs are resetting to higher rates this year and next — setting up a potential wave of foreclosures that has put policymakers on edge.

Lawmakers in positions of authority in Congress are flatly ruling out the possibility of a government bailout to cover mortgage loans in default.

Sen. Christopher Dodd, chairman of the Senate Banking Committee, while stressing “that we want to do everything possible to avoid foreclosures,” said “I’m not interested” in a bailout plan. That “may do more harm than good,” said the Connecticut Democrat, who is seeking his party’s presidential nomination in 2008.

The moves by Freddie Mac and Washington Mutual came a day after federal regulators called on lenders to work with struggling homeowners unable to meet payments on high-risk mortgages.

“We can jawbone,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said in a telephone interview Monday.

At the same time, the sprawling complexity of the home-mortgage business complicates the picture and means that not all loans can be restructured. Increasingly in recent years, big financial institutions and Wall Street investment firms buy home loans in bulk from banks and other lenders and bundle them into securities to be sold and resold to investors, spreading the risk.

If a mortgage has been securitized and is not on a lender’s books, that lender often will need the consent of the ultimate holder of the loan. Around three-quarters of the estimated $600 billion in subprime mortgages taken out last year fell were securitized, according to Wall Street analysts.

“You’re dealing with all kinds of constraints — legal constraints, institutional constraints — and they’re not easy to work around,” Ely said.

Lenders “certainly are aware that mistakes were made” with subprime mortgages during the housing boom, said Jack Aber, a professor of finance at Boston University. Still, he said, it is preferable “to let markets do their work when they can” to remedy the situation.

Banks and other mortgage lenders repossessed more homes last month as many borrowers — mostly subprime — couldn’t keep up with payments, according to a survey conducted by RealtyTrac Inc. that was released Wednesday. Foreclosures in March spiked to 149,150, a 47 percent leap from March 2006, according to the survey. Lenders repossessed one out of every 775 homes in March.

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