10 Dec Rate Freeze Diagnosed Anemic
The New Hope subprime mortgage plan is “anemic” and helping borrowers seems “incidental”, Tanta says in the initial reaction to the plan post on the Calculated Risk Finance and Economics blog.
“Is it all kind of anemic after all the build-up? Yep. Does it mean contracts are now invalidated in the U.S.? Not as far as I can see; in fact, I’d say the contracts were the part of this that got the most thorough protection. In my reading of this, giving a deal to a borrower almost seems incidental,” Tanta writes.
Tanta is a former bank officer and mortgage lending specialist, and a regular contributor to Calculated Risk Finance and Economics blog.
Tanta explains borrowers will be classified into three groups:
- Not in default and default not imminent – not eligible for rate freeze – borrowers will be encouraged to refinance
- Not in default and default reasonably foreseeable – able to make payment at current rate, but unlikely to be able to refinance (generally because LTV is too high with FICO too low) – eligible for rate freeze if they meet some FICO and payment increase tests
- In default or default imminent – unable to refinance, not eligible for rate freeze
Pooling and servicing agreements “nearly universally contain language that says loans can only be modified if they are in default, or default is imminent, or default is reasonably foreseeable,” Tanta says. “Therefore, what The Plan does is simply provide a kind of standard definition of those categories for the vintages of loans in question.”
“This isn’t about solving the borrowerâ€™s problems permanently in the best possible way (a mod might be a better permanent solution than a refi for the borrower),” Tanta says. “Itâ€™s about solving the problem while staying inside the security rules.”
See also Bush Subprime Mortgage Plan – Devil Is In the Details on the Bankruptcy Law Network.
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