What does this Rate Freeze Look Like - Who Qualifies?

A proposed 5 year rate freeze for sub-prime borrowers whose mortgage loans were originated between January 1, 2005, and July 31, 2007, with rates that are due to reset between January 1, 2008, and June or July of 2010.

What are the other requirements for this proposal?

Borrowers must be able to afford their existing rates and be current on their payments. Under the proposed plan, homeowners who have demonstrated that they are a reasonable credit risk but who could not afford their house payments with higher rates would qualify for "fast-tracked" loan modification and a 5-year interest rate freeze.

Apparently, borrowers who have fallen behind on their loan payments might still qualify for the freeze, but they would face more stringent stipulations before receiving any such loan modification.

Commentary

Whether or not this plan will make any significant improvement to that rate of defaults really remains to be seen. One thing that stands out is that it is not going to bail out every struggling homeowner. In my market it's not just the rate adjustments that are problematic. It seems to me that loose lending standards allowed borrowers to buy more of a home than they could really afford. I use the term really because obviously they could technically afford the home or they wouldn't have qualified for it in the first place. Not ground-breaking news in a nation that spends like no other. Who doesn't want the biggest bang for their buck? As a broker, that is one thing that I don't like to see my clients do. The products were out there for the taking. If people were maxed out from the beginning there's really no margin of error once they fall behind. How many of these type of situations will be addressed by the plan?

My feeling is that it's not just an ARM problem. Furthermore, one might ask, "How is this plan fair to those conventional borrowers who have or will incur rate adjustments according to the terms of their loans, but are not getting the benefit of any rate freeze?" Sounds like a class action lawsuit waiting to happen.

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