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 weblog author for Homes Advisory, the blog for New Homes Realty, Inc., Sandra Tuell covers topics that run the real estate gamut, written expressly for the home buyer. On the blog, home buyers will find practical information and advice on preparing their existing homes for sale, enlisting the services of a buyer’s agent, searching for new homes, making an offer and closing the transaction. Sandra regularly presents real estate news from the perspective of how events will impact home buyers and the real estate industry in general. Trained as a journalist, Sandra stepped into the real estate industry as an accredited home staging specialist, interior arranger and color expert. Since March 2007, Sandra has researched, commented on and explored happenings in the real estate industry, including home building, home mortgages and financing, real estate investing, and the economy. With a passion for all that is pertinent to the design, comfort, livability and marketability of the home, Sandra also provides tips and insights for homeowners who wish to maximize the potential of their personal spaces and turn their new houses into homes. For the past four years, Sandra has operated her own interior arrangement and home staging company, Roomscapes, servicing clients in Pinellas County, Florida. 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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