Countrywide Financial, America's biggest mortgage lender, has unveiled a $16bn (£7.8bn) rescue plan for tens of thousands of customers who might be in danger of losing their homes.
The company said it would call some 82,000 customers and offer to refinance or change the terms of their home loans before an interest rate rise kicks in. In doing so, it is responding to growing political and public pressure to prevent a wave of foreclosures that many fear could cause significant damage to the wider US economy.
Countrywide is at the eye of the storm in the sub-prime mortgage market, having been one of the biggest lenders to Americans with poor credit histories who are now defaulting in record numbers. "Unprecedented times call for unprecedented remedies," said David Sambol, its chief operating officer. "We are determined to assist borrowers who have the willingness and wherewithal to remain in their homes, but need a little help to do it."
Home repossessions are threatening to become a serious problem in parts of the US, as well as threatening to undermine consumer spending. An estimated three million people have taken out sub-prime mortgages.
Brokers sold the loans in the expectation that borrowers would be able to refinance bef-ore a higher rate kicked in, but that has become much more difficult now that house prices are in sharp decline in many areas and Wall Street is refusing to finance more sub-prime lending.
Congress is holding hearings today on a new Bill that outlaws selling mortgages to people who cannot afford them.
Second SIV hits the wall
A structured investment vehicle managed by the German bank IKB has become the second vehicle in the troubled sector to call in the administrators. Rhinebridge, one of the first SIVs to run into trouble when the credit crunch began to bite last summer, has hired Deloitte to lead a restructuring or liquidation. Deloitte is also handling the receivership of Cheyne Finance, the SIV managed by the London hedge fund Cheyne Capital. SIVs rely on short-term debt markets to invest in asset-backed securities and have been among the hardest hit by the slowdown in the American housing market and credit crunch. About 80 per cent of Rhinebridge's funds are invested in mortgage-backed securities in the US, where the housing crisis has led to a massive devaluation. A trio of big American banks are trying to set up a $75bn superfund to head off what could be a wave of forced assets sales across the sector.