WASHINGTON - By prodding the mortgage industry to help troubled borrowers, the Bush administration's response to the housing crisis has reshuffled the likely winners and losers - except no one can agree on who they are.
The mortgage industry and government officials who took part in crafting the plan are united in saying it is the borrowers who benefit. Meanwhile, consumer groups and Democrats say it is the industry that was really bailed out.
If the plan were fully implemented, some mortgage lenders and some borrowers with poor credit could see their financial situations stabilized, while investors around the world who bought securities backed by U.S. mortgage loans could see lower profits.
Many, though, were quick to say that the plan helps businesses more than the 1.2 million homeowners it is in theory supposed to aid.
"It's more realistic to say the plan is saving American lenders" than to say it is saving homeowners, said Brian Brady, a managing director at the San Diego mortgage-banking firm World Wide Credit Corp.
In announcing a plan to freeze interest rates for five years for homeowners whose mortgages are scheduled to rise in the coming months, President Bush maintained that the plan, negotiated with industry groups, should not be seen as a government solution to the mortgage crisis. Instead, he called it "a sensible response to a serious challenge."
But some analysts say that loan-servicing companies, which collect and distribute payments to investors in mortgage loans, are under intense pressure to make changes that do not benefit the long-term financial goals of the investors whose best interests they are bound to represent.
"The clearest winner is likely to be the legal profession," said David Resler, chief economist with Nomura Securities International Inc.
Concerned that a flood of lawsuits would stop loan-modification efforts, Rep. Mike Castle (R., Del.) has introduced a bill that would give loan servicers a six-month shield from lawsuits if they make modifications.
Whether the servicers are protected, however, may be moot.
Russell Martin, a residential-mortgage adviser and author of SmartMortgageAdvice. com, said the plan would help a few customers, but not a majority. It excludes loans made to real estate speculators and those in which borrowers did not prove their incomes.
"It's a Band-Aid on a gunshot wound," Martin said.
Federal banking regulators who played a key role in developing the plan argue that investors in mortgage-backed securities will benefit to the degree that foreclosures are avoided. Broad-based loan-modification efforts "are often likely to lead to better aggregate investor returns than foreclosures," Federal Reserve Governor Randall Kroszner said in testimony for a House hearing yesterday.
But putting the needs of investors aside, Democrats and consumer advocates question whether enough borrowers will be helped. They say the plan does not do anything for borrowers whose loans already reset at higher rates or for those with other kinds of risky loans. Some also question whether the five-year duration of the plan will be long enough for many borrowers to benefit.
The chairman of the House Financial Services Committee, Rep. Barney Frank (D., Mass.), said that making the plan available only to borrowers with lower credit scores sent the message that maintaining good credit was unimportant.