States are working on loan modification plans. Amen - it's needed promptly.
I'm all for re-writing loans that have terms that cause people to jump 30-40%, subject to some type of discretionary cap. I mean, seriously ... that's just ridiculous.
I was touring CNBC's blogs, which I've never have done (because ... you know), and I found this note from FDIC Chairwoman:
My loan modification proposal targets a specific set of borrowers: those that are in subprime hybrid adjustable rate mortgages (2/28s and 3/27s) who have been current on their payments at the starter rate but are unable to make their resets. If it is determined that they can make the reset payment, then they will be bound to the terms of their contract. Because of weak underwriting, however, we believe that the overwhelming majority will not be able to make the reset, which typically results in a payment shock increase of 30 – 40%. The FDIC currently estimates that 1.2 million borrowers who are facing resets in the next five quarters may be eligible for this proposal.
...
One last important point I would make is that this category of borrowers is typically already paying between 7 – 9% at their starter rate. This is well above prime rates for a typical 30 year fixed mortgage."
...
One last important point I would make is that this category of borrowers is typically already paying between 7 – 9% at their starter rate. This is well above prime rates for a typical 30 year fixed mortgage."
1.2 million is a lot. It would almost double the default rate from this year, other things being equal (of course they are not - some of these folks are ones who would have defaulted anyway).
