On Friday, the Wall Street Journal reported that the Bush administration is working with some of the big mortgage lenders on a plan to reduce foreclosures and loan defaults by freezing interest rates on subprime adjustable-rate mortgages (ARMs). Treasury Secretary Henry Paulson and the lenders consortium, including Countrywide, Citigroup, Washington Mutual and Wells Fargo, hope to hash out a detailed plan before the end of this year.
With a 2/28 subprime mortgage, the introductory rate holds steady for two years, then adjusts (up or down) in the remaining 28 years of the loan. Many borrowers purchasing new homes got these subprime mortgage loans because they had less than stellar credit. Those who took out a $200,000 ARM in early 2006 when rates were 8.25 percent or higher will be facing interest rates of 10 percent or higher when the loans reset in early 2008. To look at the impact in dollars, if the rate adjusted up 2 percent to 10.25 percent, the monthly payment (principal plus interest) on that $200,000 loan would jump $289. Current estimates are that between 2 million and 2.5 million homeowners have subprime loans that are due to reset within the next two years.
With a flood of foreclosures looming ahead, lenders and regulators are adopting a more pro-active stance in an attempt to help borrowers who could afford their mortgage payments at the introductory rates keep their homes. According to press reports, the two major points to be worked out are:
The most likely scenario according to the Wall Street Journal is that the criteria set by lenders will essentially divide subprime loan holders into three groups:
Only those who fit into the third category would be eligible for assistance.
Why are mortgage lenders willing to freeze interest rates? It only makes good business sense in the long run. Many real estate markets are experiencing a lag in existing home sales, falling home prices and a sizable backlog of homes for sale. The last thing lenders want is to end up with a mass of foreclosed properties that flood an already backlogged market, leaving them holding assets that will quickly depreciate.
If you need mortgage relief, contact New Homes Central Lending to convert an existing ARM to a fixed-rate loan. New home buyers…get free loan pre-approval for a new mortgage. Contact our loan officers toll-free at (866) 439-6549, Monday – Friday from 8:30 a.m. – 8:30 p.m. or Saturday and Sunday from 9:30 a.m. – 6:30 p.m.; or apply online today.
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The Author: Sandra Tuell Website: http://www.newhomes.com About: As an accredited real estate enhancement professional, interior arranger and color specialist, Sandra Tuell's expertise is in helping clients transition to a new home - first by preparing their current homes for resale, and then by creating warm and inviting spaces in their new homes that are uniquely personal. With a passion about all that is pertinent to the design, comfort, livability, and ultimately the marketability of a home, Sandra is excited to share her insights with homeowners who wish to maximize the potential of their homes. As a writer for New Homes Realty, Inc., her focus is to provide practical information and affordable tips that both inspire readers and instill the confidence to try something new. "Our personal spaces can have a profound effect on how we feel," stresses Sandra. "Everyone deserves good design. Creating beautiful interiors has more to do with creativity than money. The whole point is to create a space that makes you feel good...that you feel like coming home to." For the past four years, Sandra has operated her own interior arrangement and home staging company, Roomscapes, servicing clients in Pinellas County, Florida. She received specialized training in interior arrangement, and earned certification in real estate enhancement through Realty Enhancements International. Previously, Sandra worked in the corporate world as a marketing professional, applying her creative energy in a variety of roles including advertising, promotions, special events planning and web content creation. Her current position as a writer for New Homes Realty allows her to bring together her love of design and her educational training as a journalist. "It's really the best of both worlds," says Sandra.
This entry was posted by Sandra Tuell, on Tuesday, December 4th, 2007 at 11:40 am and is filed under Mortgage & Home Financing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Comment by Mortgage Relief
There are a number of different mortgage relief programs proposed by the lenders/government that a home owner should really do his research before settling on one. Actually, the first thing the home owner should do is call the lender and talk about the issues they are having. It is solely up to homeowners to initiate contact with the banks.
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