PLAN TO FREEZE SUB-PRIME MORTGAGES UNDER CONSIDERATION!
AS OF AUGUST, 2007, 6.6% OF SUB-PRIME MORTGAGES IN FORECLOSURE
Today's Wall Street Journal, in an article written by Deborah Soloman and Michael M. Phillips, on Page One, report of a plan between The White House and several major financial institutions to freeze interest rates on certain sub-prime mortgage loans. The plan, being finalized between the U.S. Treasury Department and a number of larger mortgage originators, including Citigroup, Countrywide Financial, Wells Fargo, and Washington Mutual, would extend introductory, or "teaser", rates on select borrowers who might have trouble keeping up with their mortgage payments when their rates reset to higher interest levels.
Over the last couple of years, Dean's Team has had experience with several buyers with challenged credit histories here in Chicago. Some considered loan providers offering rates as low as 5%, sometimes lower. Most often, however, these rates were kept at that level for only one or two years, before resetting to higher rates - often 8 or 9 percent, or more, depending on the borrower's individual financial situation. Such an increase in the interest rate could raise the borrower's monthly mortgage payment by several hundred dollars.
In the recent past, it was comparatively easy for these challenged borrowers to refinance into a new, more stable adjustable or fixed-rate loan. However, recent tightening in loan underwriting standards have impeded their ability for an easy, and affordable, re-fi today.
The specifics of a sub-prime rate freeze, and who would qualify for it, is still being debated. One scenario being considered would freeze introductory rates for as long as seven years, depending on the borrower's financial situation. Those holding some equity in their homes, as well as stable employment and income, would most likely qualify for the new program.
Plans to freeze sub-prime loans come amidst hints that Federal Reserve Board Chairman Ben Bernanke favors further interest rate cuts by the FED. Bernanke, in remarks in North Carolina Thursday night, showed concern that the "turmoil" in the mortgage and housing markets create "greater than usual uncertainty" in the economic forecast. Also on Thursday, the U.S. Commerce Department released data indicating a fall off in new home sales, as well as a drop in the average price of a new home by 13% since October, 2006.
DEAN MOSS & DEAN'S TEAM CHICAGO
