Foreclosures: Rate Freeze Relief On Way To Stall Foreclosures

The Bush administration is making loud noises about freezing sub-prime loan rates for five years. If true, it will save thousands in Houston from the waves of foreclosures.
White House will release details of the plan that will be applicable to those owners who took out loans from January 2005 till 30th July 2007. The rates of these loans will rise from January 2008 to 2010.

Economist Barton Smith has calculated that nearly 37,000 ARM’s will increase from the end of this year and the figure will jump to 50,000 in the following year. There is no doubt that this rise will be followed by foreclosures because most of the loans were in the sub-prime category and had been sanctioned to those with weak credit and low income. In any case the loan culture is pressing down the people flat – loans of diverse kinds. This is the view of Smith, Director of Institute for Regional Forecasting, Houston University. So the resets are popping up at a very inopportune moment. Smith further opines that that freezing the rates does not get at the root of the problem – just extends it for some time. Ultimately the rates will rise.

The rise depends on fluctuating indices, a fixed percentage and the discretion of the lender. The LIBOR or London Interbank Offered Rate is the yardstick for sub-prime mortgage rates.
The government’s plans are too late for many who have already been brought under by the lashes of foreclosure. The story of the Brooks couple in Houston is one of many. When they took the loan they were kept in the dark about how and when rates would rise. The foreclosure warning was a bolt in the blue. Brooks is handicapped. This is the first time they bought a house to set up a home. For help they are turning to ACORN – a non-profit group that advocates the bringing about reform in the mortgage system and abusive loan.

There are other causes like divorce, sudden illness and job less that lead on to default and foreclosure.
Texas is not as badly hit as California, Nevada, Virginia or Florida because the local economy is as yet stable and the real estate market has not slumped.
With the general economy depressing, even before the government started talking about remedial measures, the lenders are contacting borrowers for modifying loans.

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