Feds and banks are near an accord to freeze subprime rates for certain borrowers.
The Bush Administration and certain banks, including Wells Fargo, Countrywide, Citigroup and Washington Mutual, are apparently close to reaching an agreement that could freeze subprime rates for certain borrowers for up to seven years.
In question are the subprime loans that carry a low "teaser" interest rate for the first two or three years, then reset to a higher rate for the remainder of the term, which is typically 30 years in total. If no action is taken, rates are expected to adjust on these loans from the current 7% or 8% to anywhere between 9.5% and 11%.
According to the Wall Street Journal, included in this so-called Hope Now Alliance are lenders, investors and mortgage counselors that apparently represent 84% of the overall subprime market.
Treasury officials fear that the number of loan defaults will continue to increase if an accord isn't reached to ease the current subprime meltdown.
Hope Now Alliance: Banks hoping for more money NOW!
As I understand it, currently in California borrowers who have not refinanced have NON-RECOURSE LOANS.
Currently, the FB’s (= f'ed borrowers) have the right to walk away and mail the keys to the bank.
--------------------- Definition of non-recourse loan: A secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance (for example, if real estate prices have dropped), the lender is simply out the difference. ---------------------
HOWEVER, IF the FB refinances, they LOSE their NON-RECOURSE status.
I would assume that if a FB takes the bail-out bait and calls the lender to get their interest rate increase frozen, then this revision in the contract would switch their mortgage from NON-RECOURSE to RECOURSE.
After their interest rate is frozen the FB cannot walk away from their home without losing everything: money in savings, 401k, cars… and having their wages garnished. Seems similar to the new BK laws. It's the new indentured servitude (but didn’t the servant get their freedom after they paid for 7 years, rather than 30 years or more paying on an inflated mortgage?).
I am wondering if one reason that these bail-out plans have been announced with such vague language is to test the waters to see if the public catches on about the downside for the FB’s.
FB'S: Don't take the bait! Preserve your right to walk away from an upside-down mortage. This right is the most valuable thing you have in this uncertain time. Be sceptical! When was the last time a bank just did you a favor without something in it for them??!!
This site is sponsored by Linda Slocum of RE/MAX of Santa Clarita in Valencia. RE/MAX of Santa Clarita in Valencia does not make any representation or warranty regarding any information, including without limitation its accuracy or completeness, contained on this Web site.
