Sub-Prime Losers
A lot of news of late has been about the new sub-prime assistance plans that the White House recently announced. On the surface, the news touted how the plan would help those with sub-prime mortgages by freezing interest rates which would have led to skyrocketing monthly payments. The truth, however, is less shiny.
Many of those who heard the news may find themselves disappointed as they begin to learn that they may not qualify for the help being offered.
The plan, which includes a five-year freeze on interest rate hikes for some sub-prime borrowers with adjustable-rate mortgages, the White House estimated it would offer some financial relief to 1.2 million families out of the 1.8 million facing higher interest rates. The initiative comes at a time of record high foreclosure rates.
But there are some very strict limitations.
A spokewoman for the Center for Responsible Lending said that she estimates the plan would only help about seven percent of those with dangerous sub-prime mortgages. This equates to about 145,000 borrowers, far less than what the White House had announced.
Sharon Reuss went on to add: “This is so limited in scope.”
The guidelines on who will find help are detailed in the American Securitization Forum (ASF), which represents the major players in the creation of the plan. It included lenders, those who service the loans, and investors who hold the loan debt.
The guidelines limit the interest rate freeze to only those borrowers who are unable to afford payments if they rise above their introductory rates. These normally adjust higher after the first 2 or 3 years of the loan.
Those who will not find relief from the plan are the homeowners who can afford to continue their payments even after their rates adjust higher, and those homeowners who cannot afford the loan at even the lower initial rates.
In addition to the above, further limitations are that the home loans must have been made between January 1, 2005 and July 31, 2007 and have been included in securitized pools.
Interest rates must be scheduled to reset no earlier than January 1, 2008 and no later than July 31, 2010 and the restructuring process must begin before the loans reset.
To determine affordability, the plan would use common data such as credit scores. FICO scores may not exceed 660 or have gained more than 10 percent since the origination of the mortgage.
Complete details on who will qualify can be found online.
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