November 21, 2007

Mortgage relief less than advertised?

I am still trying to figure out exactly what the deal that the governor and mortgage lenders announced yesterday actually means. It's being sold as a "freeze" on mortgage rates that are about to reset to higher levels of interest. But I suspect there is less here than meets the eye.

It sounds like the lenders have agreed to be more pro-active in contacting borrowers who might be in distress, while offering them a "streamlined" process for seeking relief. But this is not the kind of across-the-board freeze that FDIC Chairwoman Sheila Bair recommended and which I critiqued here. The process the governor announced Tuesday would still involve a case-by-case evaluation of each borrower, as even Schwarzenegger said.

This strikes me as good business practices on the part of the lenders and a potential benefit to borrowers who truly cannot afford to repay their loans when they jump to a higher interest rate. It's also good PR, for the lenders and the governor. But it's nothing like the sweeping move that Bair recommended.

Here is the Bee's description:

The deal asks lenders to freeze low interest rates for subprime homeowners who reside in their property, are current in their payments and show they cannot afford a scheduled rate increase. Those homeowners who already have missed payments and who are threatened with foreclosure don't appear to benefit from Tuesday's agreement.

"To lose your home, as probably everyone knows, through a foreclosure is an emotional crash, and it sometimes takes years to recuperate from," Schwarzenegger said. "But we don't have to sit idly by to watch the American dream become the American nightmare."

Lenders could freeze rates for five years or longer, but terms will depend upon each borrower's situation, Schwarzenegger said.

Under the arrangement, the four lenders agree to contact borrowers before their rates adjust and establish a streamlined process for handling loan modifications. They also will provide data on the loans they service so the state can track their changes.

Posted by dweintraub on November 21, 2007 8:35 AM