Mortgage rate freezes?
The major thrust of the proposal would be to get lenders to extend the low, introductory rates offered on subprime mortgages for up to five years. These loans are usually offered to borrowers with weak credit histories.
An estimated 2 million of those initial teaser rates are scheduled to reset to much higher levels by the end of next year, pushing the payment on a typical mortgage from $1,200 per month to $1,550. The concern is that many homeowners will not be able to meet the higher payments, triggering hundreds of thousands of defaults.
The proposal doesn't call for the use of taxpayer money, AP adds. In theory, it means mortgage-backed-securities investors will take the hit -- though "they would still get more money than if the mortgage went into default," the story notes.