Mortgage Crisis Plan: A Real Fix or Just More Hype?
Last week, the President unveiled his new mortgage crisis plan to help millions of homeowners cope with the prospect of rising adjustable rates. Sounds like a great plan? Before you go rushing to the phones to have your rate fixed, listen to the facts first. Chances are that you won’t qualify for the assistance.

Over the past few years, many subprime borrowers got themselves into their homes with loans that offered short term “teaser” rates. Those rates would eventually adjust to the marketplace once the teaser periods were over. Since those borrowers had poor credit scores, the market rates for such borrowers would be much higher than borrowers with good credit. Therefore, the jump from the teaser rates to market rates could be substantial. Many of these borrowers had assumed that the equity in their homes would allow them to refinance into a better loan. But when their home values dropped, they are not able to refinance and are stuck in their original loan.

The President proposes to “freeze” these teaser rates for five years to allow borrowers to continue paying the same payments they have been. But do you qualify?

To be eligible for such a rate freeze, the borrower must have obtained their loan between January of 2005 and July of 2007. Their rates must be scheduled to adjust between January of 2008 and July of 2010. They must live in their homes (no investment properties allowed). They cannot have any mortgage lates, but must show proof that they cannot afford the upcoming adjusted rate. There is even some verbiage about credit scores must be below 660 and equity in your home cannot exceed 3%. Those two last items may have been stricken from the final proposal.

But nevertheless, the consensus is that this plan will only help a handful of the millions that the President targeted. One group estimates that only 145,000 homeowners will qualify under these restrictions. And final word is that this program is still voluntary from the lender’s perspective. Your particular lender may choose not to participate.

This author’s opinion is that, once again, the proposed solution will not cause a blip in the current mortgage crisis. But the folks in Washington can say they did something….