The health of the nation’s economy is under serious threat, with thousands of Americans facing foreclosure as they find themselves in default on their subprime loans. Analysts say recession is just around the corner. Approximately 1.8 million U.S. homeowners who took out loans with low teaser rates are now facing pricey loan resets next year, says the Federal Reserve. At least half a million borrowers risk losing their homes. And folks the world over are becoming increasingly pessimistic about a very shaky real estate market and the U.S. economy in general.

As U. S. citizens worry about the nation’s economic health, credit markets here and abroad reel from the shocks to a faltering system. Can the Fed help distressed homeowners who are facing the loss of their prized homes? Possibly. There might be hope—at least for some. President Bush today outlined a five-year plan to stem the mortgage crisis. It’s a situation that didn’t happen overnight, and solutions will take time.

The president calls the plan “a sensible response to a serious challenge.” The idea is that by freezing mortgage rates, the surge in home foreclosures can be slowed down. But only a small fraction of borrowers will be eligible for help under the plan--and subject to the rate freeze. For other families, there will be assistance in refinancing with their lenders, and some can move into loans secured by the Federal Housing Administration.

Critics say Mr. Bush is violating his free market principles. But the president insists that this is not a government solution being imposed. Lenders are not being bailed out, he says; nor are real estate speculators or those who borrowed recklessly.

Treasury Secretary Henry Paulson negotiated with lenders in the mortgage industry to give distressed borrowers a few options and some hope to help them avoid foreclosure. Homeowners who are falling behind on their payments will learn about the options via a letter that is being sent to thousands of borrowers. A new hot line has been set up for people to call: 1-888-995-HOPE.

Just the day before the President’s announcement, democratic presidential candidates Hillary Clinton and John Edwards seized on the U.S. mortgage crisis, offering their own competing plans to help millions of people who face steep rate hikes or loss of their homes.
Ms. Clinton blamed mortgage lenders and brokers who lowered underwriting standards, regulators who failed to provide oversight, and ratings agencies that gave high marks to risky securities. She called for a voluntary freeze on the adjustable rates of subprime mortgages, and a 90-day moratorium on subprime foreclosures.

John Edwards’ proposal to “restore the American dream of home ownership.” is a recommendation that homeowners facing foreclosure should have the right to lowered rates or restructured loans, with any rate freeze on adjustable-rate mortgages to last at least seven years.

Under his proposal, lenders would be obligated to help people who have fallen behind on their loan payments by converting their mortgages to those with a fixed rate, capitalizing their delinquent payments, lowering their interest rates or forgiving a portion of their loans.
So time will tell—hopefully, the same folks who created this mess can work to help people buy enough time to make the difference.