WASHINGTON — President Bush's plan to slow the mortgage meltdown could help prevent hundreds of thousands of people from losing their homes, but many others would get no relief -- and the plan's effect on the broader economy remained a topic of sharp debate.
Under the plan outlined Thursday, lenders would be given broad latitude to fix troubled loans, notably those with low introductory teaser rates that will reset to higher payments between Jan. 1, 2008, and July 31, 2010.
Such modifications would remain voluntary, however, triggering strong criticism from Democrats and consumer advocates.
The biggest winners could be struggling borrowers who have kept current with their adjustable-rate loans but cannot afford to refinance when their teaser rates expire. There are an estimated 600,000 of them, and they might be able to have their low rates frozen for five years.
But those who took out teaser-rate loans to speculate in the housing market probably would be losers because the plan excludes mortgages in which the borrower doesn't live in the home as a primary residence.
Borrowers whose loans have already reset to higher rates won't necessarily get relief either, nor would an estimated 600,000 people who can't keep up with their payments even at the low introductory rates. Officials acknowledged that for those borrowers, foreclosure and a return to the rental market are probably inevitable.
By some estimates, nearly 2 million Americans are in danger of losing their homes over the next two years. Economists say a wave of foreclosures that large could sink the economy into a recession, raising unemployment and spreading hardship to many more people.
Treasury Secretary Henry M. Paulson Jr., who spent weeks spearheading negotiations among mortgage servicers, investors and groups representing borrowers, said troubles in the housing market were the "biggest risk to the economy."
"This is not a silver bullet," Paulson said after meeting with Bush. "We can't put together an industrywide initiative and suddenly make the excesses and the bad lending practices and so on of the last number of years go away."
Yet economist Edward Leamer, director of the UCLA Anderson forecast, says the Bush plan does exactly the opposite of what is needed to revive the housing market by artificially propping up housing values.
