“For loans that require payment of interest only prior to the initial reset, followed by amortizing payments, the rate would be kept at the current rate during the modification term, but the borrower would be required to make an amortizing payment beginning after the reset date.”

Also, it seems that if it is certain that you qualify, it might be best NOT TO SIGN an agreement to the new terms freezing the interest rate because your rate may still be lowered if it would have been lower under the original loan agreement. This would in effect cap your interest rate. How do you like them apples… (They probably need to do this to avoid being sued for failing to honor the original loan agreement)

http://www.doctorhousingbubble.com/forum/viewtopic.php?p=330#330

You bring up good points that will be wrestled with shortly. This is merely a tiny fix for a few people. All it does is prolongs the inevitable for a few more years. This will seem like a distant story once the fever goes down and reality sets in, in particular when Q1 has an amazing amount of loans resetting and people will have credit card payments coming due from holiday shopping. Remember the head spinning with FHASecure? The housing sector rallied for a week but then the foreclosure numbers, median price decreases, and fraud started hitting the table and folks realized this is a structural problem that runs much deeper than simply subprime. I’m sure next year we’ll start hearing the lawsuits hit the table. The problem is that many of the brokers selling horrible mortgage products are now defunct. People will need to go after someone higher up in the food chain such as hedge funds or Wall Street but good luck there. The issue with this plan is it is essentially a ploy to allow people to unload horrible mortgage products into government sponsored products. This is not stated but the idea is eventually housing will go up and these subprime borrowers will be able to sell their home to an unsuspecting diligent person on a prime government mortgage and all will be well. The note is moved off the risky secondary market and now has an implicit guarantee by the government. The only question is will future buyers want to buy homes at current prices? My guess is the answer is no. In fact, rates are at multi decade lows, productivity is still high, employment is supposedly good so why do people need banana republic mortgages to purchases homes? Simple. Prices are in a bubble. Is the media afraid to admit we are in a major housing bubble?

I thought this was going to be a blanket freeze on all interest-rate resets? Why not just freeze everybody’s interest rate? Wouldn’t that prevent more foreclosures without having to evaluate each loan?
Freezing everybody’s rate would violate the rules for securitizing mortgages, which typically allow modifications only when the loan is in default or in danger of going into default. The goal of preventing foreclosures was balanced with the goal of maintaining a functioning securities market, which could be decimated if the accounting or tax treatment of securitized loans were changed ad hoc.

Mortgage Plan Q & A

Looking at the data more carefully, it only seems like a a very small subset of mortgages outstanding will be impacted. I need to make a correction, many of the loans fall in the 2/28 category so the 5 year freeze will in effect turn them into 7/23 loans. From what I am gathering, it is simply delaying the inevitable unless the market recovers or the buyer can make up the income to support the new payment in 5 years.

How this will work out is yet to be seen.