Bush Subprime Mortgage Plan – Devil Is in the Details!

A proverb foretells even the grandest project depends on the success of the smallest components. The devil is in the details of Bush Administration plan to deal with the subprime mortgage crisis announced last week. Commentators are predicting the plan will help precious few and won’t help those borrowers who are in trouble now.

Harvard Professor Elizabeth Warren says the plan “seems to be nothing more than a guideline for when some lenders or servicers might let some borrowers extend lower interest payments for a while before the interest jumps up later. The loan on the house stays the same, even the family owes much more than the house is now worth–a circumstance that will cut off any refinancing option and any real resolution of the problem. The plan doesn’t require any new laws or government intervention because no one is bound to anything.” See yesterday’s column, “The Sandbag Plan“, in Warren Reports on the Middle Class, posted on the TPM Cafe.

St. Louis Bankruptcy Attorney Wendell Sherk posted here on Bankruptcy Law Network recently that the plan applies only if your subprime mortgage loan is current.

Here is the 34 page executive summary of the Bush Subprime Mortgage Plan, officially called the American Securitization Forum Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans.

There is no help in the plan for people whose ARM rates have already reset and payments increased, those who have already missed a mortgage payment or two and are facing foreclosure, and those who owe more mortgage debt(s) than the home is worth, according to the plan summary document.

“The plan applies to first lien subprime residential adjustable rate mortgage (ARM) loans that have an initial fixed rate period of 36 months or less (including “2/28s” and “3/27s”), that:

• were originated between January 1, 2005 and July 31, 2007;
• are included in securitized pools; and
• have an initial interest rate reset between January 1, 2008 and July 31, 2010.”

Calling the plan the Goldilocks game in her recent post on Credit Slips, Warren says “the lenders decide who gets the benefits and who doesn’t. If the borrower is too cold (not credit worthy even for the teaser rate), no deal. If the borrower is too hot (could pay on the reset), no deal. Only borrowers who are just right (can pay currently, but can’t pay more) will get the deal. And the mortgage servicer decides who gets to be Goldilocks.”