Mortgage Rate Freeze May Help Homeowners, But There's A Catch

Just read about the proposed mortgage rate freeze that will be announced by President Bush today. Interesting plan, but watch out, it will only work if payments are made on time. Here's more on the proposal.

WASHINGTON — President Bush this afternoon will announce a plan to freeze interest rates for five years for thousands of strapped homeowners whose mortgages were scheduled to rise in the coming months.

The proposal would freeze introductory “teaser” rates on subprime mortgages, preventing them from resetting to higher rates for five years. A few details of the administration plan have been revealed:

-- The rate freeze will apply to loans made at the start of 2005 through July 30 of this year and will cover loans that had been scheduled to rise to higher rates between Jan. 1, 2008, and July 31, 2010.

-- Mortgage companies will offer to freeze the loans at the lower introductory rates as long as the borrowers did not miss any payments at the lower rate.

White House deputy press secretary Tony Fratto said the plan would help “potentially a little more than a million” people who can afford payments with their introductory rates, but not if they jump to higher rates.

Release of the plan will come after news earlier today that home foreclosures surged to an all-time high in the July-September period. The Mortgage Bankers Association reported that the percentage of all mortgages that started the foreclosure process in the third quarter jumped to a record 0.78 percent, surpassing the previous record of 0.65 percent of all mortgages in the second quarter.

In Indiana, about 13,000 subprime home loans were in foreclosure in June, or nearly 9.4 percent of all subprime loans statewide, a rate exceeded throughout the country only by Michigan and Ohio. Payments were past due on another 21,000 subprime loans, reports the Mortgage Bankers Association.

While foreclosures and bankruptcies related to subprime loans continue to hobble the nine-county metro Indianapolis area, the troubles here are not expected to be more severe in 2008 than in 2007, market researcher Global Insight said after releasing a study last month.

The administration’s effort is aimed at stemming a further tidal wave of foreclosures in coming years as 2 million subprime mortgages — loans provided to borrowers with spotty credit histories — reset from their introductory rates of around 7 percent to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.

Source: IndyStar.com