Sub-Prime ARM Plan
By Kurt O'Keefe, Attorney at Law on Nov 30, 2007 in Consumer Protection, Foreclosure Issues, Michigan, Mortgages, Predatory Lending
The Federal government is attempting to force mortgage companies to change the terms of Adjustable Rate Mortgages.
With the 2.3 million sub-prime ARMs coming off the teaser rate by the end of 2008, increasing many mortgage payments by hundreds of dollars per month, the crisis grows and grows.
This will lead to an estimated million plus foreclosures next year.
Chapter 13 bankruptcy stops foreclosures, but currently does not allow changes to a mortgage secured by a principal residence. That means the bankruptcy court cannot modify the terms, change the interest rate or lower the balance, on those mortgages. In California, four of the major players, Countrywide, GMAC, Litton and HomEq agreed to freeze rates on ARMS for some time.
The Treasury Dept. is twisting arms, at meetings with undisclosed participants, for similar relief across the board.
The mortgage companies say they will be sued by investors, who will lose money, if they just agree to permanently convert ARMs to fixed rates.
Well, regular readers of this blog might agree they should be sued for misleading those investors regardless.
The losses have already occurred, home prices have gone down. Most of the losses are not recognized on the books, because the foreclosures have not yet happened. Many homeowners will be current, until the ARM rate resets and the monthly payment jumps.
If given accurate information, which will be a first, most investors would agree to freezing the ARM rate, cutting their losses, avoiding foreclosures which would cost them even more money.
As quoted in the article, regulator John Reich says the program of freezing ARMs at the teaser rate would be funded by surpluses in mortgage backed securities.
He must know something the rest of us do not know.
The question for the investors if they choke on this proposal, is, who funds the bath they will take in a million plus home foreclosures?
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