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The plan to freeze interest rates on adjustable-rate mortgages for five years, called "fast track" and outlined by the Bush
administration and the mortgage industry, will come as welcome relief to some subprime borrowers, but not everyone will qualify for the freeze.
Can you count on a reprieve?
Here's a breakdown of the plan's specifics and suggestions for actions you can take to work out your mortgage issues.
Basics of the 'fast-track' plan
The introductory interest rates on subprime adjustable-rate mortgages with an initial fixed-rate period of 36 months or less (including 2/28 and 3/27 loans) would be frozen for five years.
Who the plan covers
Homeowners whose adjustable-rate mortgages originated between Jan. 1, 2005 and July 31, 2007 with interest rates scheduled for their first reset between Jan. 1, 2008, and July 31, 2010, can potentially benefit. These borrowers must live in their homes and have a potential initial payment increase of more than 10 percent.
Also, borrowers must have a credit score of less
than 600, and thus be unable to refinance into a lower rate. They
must also have little or no equity in their homes or a history of
late payments.
What to do: If this sounds like your situation, contact the company to which you send your mortgage payment. Check your mortgage paperwork to make sure the dates of the origination and the dates of the first scheduled reset match those of the "fast-track" plan.
Who is not covered
Homeowners with ARMs that have already had a reset are not covered. Additionally, those with mortgages held by banks will not qualify; the mortgages had to have been bundled and sold as securities. Those with delinquent loans do not qualify, nor do those who have good credit or fixed-rate mortgages.
If you don't qualify for the 'fast track' rate freeze plan
There are three additional elements to the plan for holders of adjustable-rate mortgages who don't qualify. Lenders for these actions are being encouraged to "take all reasonable steps," but it all depends on the individual borrower's situation.
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| 3 elements of plan for ARM holders who don't qualify: |
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| 1. |
Refinance. Borrowers with good credit who are likely able to refinance into another mortgage product will be encouraged by lenders to do so. Whenever possible, lenders will avoid charging prepayment penalties by timing the refinance to occur after the upcoming reset date.
What to do: Check your credit rating. If it is good, and you have some equity in your home, contact your lender to discuss refinancing after your ARM has reset.
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| 2. |
Loan modification. Borrowers who don't qualify for the "fast track" program, but are unable to refinance, can still seek help from lenders who will examine the individual borrowers' current income and debt obligations to determine if they are eligible for a different type of loan modification.
What to do: First, check
with your lender to see if you qualify. Make sure to have
your mortgage paperwork ready, and check to verify if
you have an ARM, whether the rate has already reset once,
and if not, the date the mortgage originated and the date
it is scheduled to reset. If you don't fit into the "fast-track"
plan, set up a meeting with the lender to try and work
out other arrangements to keep your home. |
| 3. |
Loss mitigation: This action on the part of lenders includes short sales, forbearance (extending time for payment), foreclosure, rate reduction and principal forgiveness. The mortgage servicer will determine the appropriate action to maximize the net present value of the recovery to investors in mortgage securities.
What to do: Don't sit and wait, be proactive. First call your lender to find out what it might offer in the way of assistance. You can also call (888) 995-HOPE to gain counseling for mortgage problems.
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