Proposed Rate Freeze
December 6, 2007
Lenders who are looking at massive foreclosures next year are now discussing plans that will help reduce those foreclosures. Their plan is to freeze the lower introductory interest rates on some sub-prime mortgages. The important word here for homeowners is “some”.
On the broader level those who would benefit from these plans are those homeowners who would qualify for the freeze as well as those people who live close to possible foreclosure properties.
A side problem with the increased foreclosures is that nearby properties are often losing value as foreclosures take place in the immediate area. By reducing the number of foreclosures in a particular area, the local residents will be able to keep more value in their homes.
According to a Wall Street Journal article, the Bush administration and some big mortgage lenders — Countrywide, Citigroup, Washington Mutual and Wells Fargo — are developing a plan that would keep the lower introductory interest rates on certain sub-prime mortgages where they are.
The vast majority of sub-prime mortgages are known as 2/28 ARMs. This means that they have a lower introductory rate that lasts two years, and at the end of that period the interest rate can vary, up or down, in each of the 28 years after that.
An average 2/28 mortgage that was underwritten in early 2006 had a starting rate of about 8.25 percent. When those same loans are reset at their two-year anniversary, many will climb to 10 percent or higher