Lenders Freeze Mortgages Rates For Some

The Administration and the mortgage industry came to an accord yesterday to freeze loan rates and offer relief for some sub-prime mortgage borrowers. Here’s the salient details.

Borrowers…

Current on payments get to keep low introductory rates for five years. Salvation!
Delinquent on payments: Screwed.
Who can afford higher monthly payments: Screwed.

Lenders Agree to Freeze Rates on Some Loans [NYT]
(Photo: amyadoyzie)

Comments

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  1. chrisgoh says:

    Even the article does not answer the key question. Who is paying for this? Is the government paying the difference or are the lenders taking the hit? Some posted yesterday that it was the lenders, but I’ve yet to see that stated anywhere.

  2. Me - now with more humidity says:

    It’s the lenders. Take a deep breath.

  3. punkrawka says:

    Washington Post said the lenders are taking the hit. The thing I’ve never seen details about is how to determine who “can afford” higher monthly payments. Seems like a lot of people will be crying poor even when they’re perfectly able to re-budget for a higher monthly payment.

  4. BlondeGrlz says:

    This makes me so mad. Why didn’t someone tell me I could buy a house I couldn’t afford at a ridiculously low interest rate and then have the government bail me out? Damn financial responsibility and good budgeting!

  5. Tank says:

    so they’ll have the same number of foreclosures as projected, since the people that are current will always be current (because that’s how they’re wired) and the ones who are delinquent don’t qualify for the relief.

    this is a perfect example of doing “something” that amounts to “nothing”.

  6. timmus says:

    What is delinquent? I know lenders raise holy hell if you’re late on just one mortgage payment… do those people get screwed?

  7. Boberto says:

    Too little, too late. Heaven forbid they talk about regulating mortgage brokers.

    This is what happens when the Government gives carte blanch to an entire industry.

  8. chrisgoh says:

    @Me: Forgive me if I just don’t take your word for it. The article does not state it.

    @punkrawka: Thanks for the authoritative source.

  9. savvy999 says:

    “Who can afford higher monthly payments: Screwed.

    No, simply living up to their end of the bargain. Not screwed.

  10. jakesprincess says:

    @Blondegrlz: Agreed! This makes me mad as well. My husband and I had an ARM that adjusted at 5 years when we bought our first house in 2003. We knew we would either have to be out of the house or refinance or pay a higher rate. So, we refinanced and paid all the costs for doing so. In short, we took personal responsibility and lived within our means. It angers me that others can’t do the same. Hello! You know what your loan terms are and then you budget/act accordiongly. It makes me even angrier that people who were responsible will inevitably end up paying for this somehow, even if it is in the form of higher rates for new loans.

  11. Munsoned says:

    @Tank: I wouldn’t call it “nothing.” The way I see it, Wall Street takes a hit on currently “good” loans (bad for economy), while loans currently in default continue down that path (also bad for economy). Ok, I know this may help keep some borrowers out of default by keeping their payments set, but man, this still pisses me off.

    If you are invested in the stock market (mutual funds, etc.), if the “lenders” take a hit, you’ll probably take a hit too. They’re just extracting this out of our collective wall street investments rather than through taxes. Nothing in life is free.

  12. clevershark says:

    Eventually you’re going to end up with the same number of people losing their homes, *but* they’re going to lose them a few years later. We’re talking about people who specifically could not afford the higher payment here — unless they’re all junior executives on their rapid rise to the top their financial situation just isn’t going to change all that much.

    It’s not like these people can afford to sell at a loss, which they would have to do to get out of the mortgage in the first place.

  13. Raanne says:

    if you are late on your current low-interest payments, why should they give you a break? those are examples of people who can’t even meet their payments at the rediculously low interest rate they currently have – they will be foreclosed on. if you are current on the low-interest rates, but wont be able to make the higher interest rates loans, then the bank is much better off keeping you at low interest, then going through the hassel of forclosing on you and selling the house at a loss – one way they make less money than the original contract, the other way they make no money at all. if they think you can make the payments of the original contract, then tough, your interest rate will rise.

  14. howie_in_az says:

    @Raanne: If you signed up for an ARM, why should you get any break at all?

  15. camille_javal says:

    @howie_in_az: because Hoovervilles are unsightly.

  16. HRHKingFriday says:

    If anything they’re rewarding the people who’ve managed to stay afloat with their payments even though they probably didn’t have a history of doing so. They’ve managed to cut their spending to afford the house, maybe got a second job. They, in most cases, deserve the rate freeze.

    lets the realistic though. This is going to affect such a small portion of subprimers I don’t think it’ll really make a dent in the foreclosures.

  17. Raanne says:

    @howie_in_az: i’m not saying you should get a break – i’m saying that it is in the lenders best interest to give them a break, because if the homeowner can not make their payments, the lender will lose money – the lender makes more money by freezing interest rates, than by raising them. And the bank is goign to do what is best for their bottom line.

    Think of it this way – if a homeowner can make their payments now, the bank is getting x% of the payments in intrest – if its in the first few years (which an ARM low interest would be) you are looking at 80+% of the mortgage payment being interest. so say you are making a $1000 payment, the bank is getting paid $800/month from you, that is not going towards your loan.

    If the bank raises your interest, suddenly you can not make yoru payments, and the bank has to forclose on your house, they are loosing that 800/month – and likely will not be able to sell the house for what you owe. Thus the bank is out 800/month + the difference in what they sold the house for and what you owe.

    The bank isn’t freezing interest rates to help people out. they are doing it to protect a source of income for themselves. Which is why if they think you will be able to make the higher payment, they wont freeze your rate – because then they can make even more money.

  18. Beerad says:

    Ugh. That article was more about political posturing by various candidates than about actual analysis of the plan.

  19. savvy999 says:

    @Raanne: If all of this was to “protect a source of income for themselves”, the banks would have certainly thought it up a long time before Bush suggested it. One thing that banks and finance houses are good at, is dreaming up ways to make/save money.

    No, the impetus of this is clear– the federal government is telling the financial sector: do something, even if it’s a token gesture, or else we will legislate. They listened, and this is their token response.

    The self-interest on the part of the banks is about protecting themselves from regulation, not about protecting profits.

  20. jaredharley says:

    I wish I had the foresight to be irresponsible with my money! When my wife and I bought our house a year ago, we considered an ARM loan for a few seconds, but decided not to go with it, since we knew we couldn’t afford the payments once the rate reset. Instead, we opted for a higher-payment traditional loan.

    Stupid us! We could have gotten an ARM and had LOTS of money left over!

  21. esqdork says:

    I’ve stated my position on this type of government intervention before so I won’t repeat it. The thing that concerns me though is that this plan is a bet that might make things worse down the road–the thinking is that this reprieve is intended to buy time so that as the real estate market stabilizes (big assumption), the borrowers with ARMs re-setting in 2008 can and will refinance (another big assumption). What happens if the market value of the house remains lower than the amount owed (as is the present case for many borrowers and I’m not even getting into negative amortization) and the borrower still cannot refinance? What happens if the payments after the refinance are still too high? What makes anyone think that a bank will loan to people with sub-par credit after this recent mess? My prediction is that many people who might have gone delinquint in 2008 will go delinquint in 2013 on top of people whose rates re-set in 2009 through 2013 and are not covered by this politically-expedient “fix.”

  22. Raanne says:

    @savvy999: a contract is a contract. i dont the bank can’t just arbitrarily decide not to follow it – either way though, this ends up being a win for the bank, in lou of the way the market has been going.

  23. gingerCE says:

    I don’t know if I qualify. I’m not sure even if I have a subprime loan. I have an ARM for 5 years (so only 2 years left on it). I have made all my payment plus additional principle and if my mortgage jumped 30% I could afford it without much problem because I don’t have much debt (except student loan–grr)–but I’d like to get the freeze–how would they determine what I can afford? I mean if I bought 2 cars on credit (with car payment) and started buying expensive stuff I wouldn’t be able to afford a higher payment so easily.

  24. TheNomad says:

    The clause “who can afford it will be excluded” is the lynch-pin of this bail out. Yes I have one of these loans, and prior to the rate jump by 2% thismonth, I was paying almost 70% of my net monthly income as mortgage payment. With the new increase in the monthly payments, I will be paying something like 90%. Will I be considered as I can afford the loan ?

    Yes I wanted to refi but due to So. Cal. housing market crash, My house have devaluated in value and nobody wants to write a new mortgage for me ? Otherwise I am perfectly capable of paying 30yr fixed load at 6% rate. Am I to blame here if I am looking forward to the terms of affordability here ? I think not. As soon as this goes thru, I am sure market will rebound a little and in a year I will be able to refi and got out of the vicious cycle.

  25. m4ximusprim3 says:

    @TheNomad: If you’re paying 70% of your net to your mortgage before your ARM jumps, god help you. and your lender.

  26. gingerCE says:

    I think there were borrowers who were irresponsible but also, crap happens. I have a friend who had a very good paying job, bought a house she could afford no problem, lost her job, and her payment jumped another $1000 a month, close to $4000 a month. It took her a year and a half to find another good job (she took low paying odd jobs at the time). Luckily, she had saved about 60K so she was barely able to pay her mortgage on time–but even now her new job pays less than her old job–she can make her payment still but each month she says she has to struggle to pinch pennies and she has no savings at all now. She can’r refi cause her house doesn’t have enough equity now. As much as I don’t think govt. should really bail out people, she is someone who would need that help.

    For me, my mortgage is doable–about 25% of my income now so it if rose to 30-35% I’d be okay–but if they are granting arm freezes, then I want in on that too. Neither she nor I asked for the govt. to help out, but now that they have, I plan to take advantage of it if I can.

  27. Ass_Cobra says:

    @TheNomad:

    Not to sound callous, but if you were perfectly capable of paying a 30 year fixed at 6% why didn’t you do that in the first place? If you were paying 70% before a rate jump how do you add amortization onto that and still be perfectly capable? What was your rate initially if I may ask? I/O or Am?

  28. mac-phisto says:

    ahh! the wonders of election-year politics.

  29. superborty says:

    Personal responsibility… Why are these people buying houses that they can’t afford? I haven’t bought a thing because the market has been overvalued yet I get screwed because this will prop up the housing prices for two more years. Real fair. Why is Bush getting involved in this at all? I thought conservatives were for free markets and personal responsibility?

  30. Glaven says:

    @superborty: Do you think it really will prop up prices? Ugh.

  31. Me - now with more humidity says:

    CHRISGOH: How about The New York Times, asshat.

  32. NereusRen says:

    It restores my faith in Consumerist readers to see so many coming out against this (arguably counterproductive) wealth redistribution plan.

    Note that, although the wealth is being taken only from lenders (stockholders) for now, “Mr. Bush will also ask Congress to temporarily expand the authority of states and localities to issue tax-exempt mortgage-revenue bonds to help people refinance their mortgages.” Thanks, Mr. Bush. Just volunteer for the rest of us taxpayers to have our wealth redistributed as well. If a government sells something at below-market rates, including by waiving taxes on it, it makes that up somewhere else: my wallet. Dang.

  33. samzuckerman says:

    Hello folks, I’m a writer with the S.F. Chronicle and would like to interview people in the Bay Area who have faced or soon will face an upward reset of an adjustable-rate mortgage. I’d like to talk about how the extra money going to monthly mortgage payments affects the household budgets and spending habits. If you’re willing to use your real name and appear in the newspaper, e-mail me at szuckerman@sfchronicle.com. Thanks