What’s a “2/28 Mortgage” and is it a Bad Thing?

10 Mar What’s a “2/28 Mortgage” and is it a Bad Thing?

There have many stories in the media recently about something called a “2/28 Mortgage,” and the problems they are causing for many people.

A 2/28 Mortgage is an adjustable rate mortgage loan where interest is paid for two years at a relatively low rate, and then the interest rate “floats,” or changes, upwards. Most of the 2/28 mortgages here in Maryland determine the float interest by using the six-month London Interbank Offered Rate, or LIBOR, PLUS 6.5 points. Since today’s LIBOR is 5.3%, once the initial two year “teaser” rate is up, your interest rate would increase to 11.8%.

There usually are limits on the amount that the rate can increase of 3% for the first adjustment and 1% each additional adjustment. While this softens the blow, it’s still a pretty hard punch: for someone with a $250,000 mortgage and a 5.5% initial rate, their payment would increase by $502.81 at the initial adjustment, and by $179.86 every six months for the next year and a half, ending up increasing a total of $1,113.64.

Needless to say, most folks can’t pay an additional $1,100 per month for their mortgage payment, and many people who took out 2/28 mortgages are forced into refinances or may even lose their homes or need to file for bankruptcy relief. A recent study by First American Real Estate Solutions, a unit of title insurer First American Corp., projects that about one in eight households with adjustable-rate mortgages that originated in 2004 and 2005 will default on those loans.

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Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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