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Mortgage rate freezes?

The AP reports that the "Bush administration and the mortgage industry, trying to counter a huge wave of foreclosures, are hammering out a proposal to temporarily freeze interest rates on certain troubled subprime mortgages."
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.

Comments

Experts says, that the mortgage freezing will will do nothing to help those people who are currently delinquent and are facing foreclosure.

It is all about protecting big mortgage houses not people, who lose their homes.

Treasury officials say financial institutions are likely to set criteria that divide subprime borrowers into three groups: those who can continue to make their payments even if rates rise, those who can't afford their mortgages even if rates stay steady, and those who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates. Only the third group would be eligible for help. My question is, on which criteria will be the sorting based on?

Personally I don't really belive in mortgage rate freezing. In Canada very little is set up for home owners to get a break, and it usually only happens if the banks see a rise in interest rates early into your longer term mortgage payment option than they were expecting when you signed it. Occasionally the interest rates go up during your 5 year term that will save you a few dollars but in the end the best way to save on your interest is to pay mortgage payments on a weekly basis. Even two payments a month will cut your actual interest payments. That way you are putting more on the principle in a shorter period of time.

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About the blogger
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
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