Boy, this mortgage idea will be popular!
… Except with lenders. For lenders it’s pick your poison.
The heat on U.S. mortgage lenders and servicers was turned up a few degrees this week when the country’s chief bank regulator publicly proposed that they permanently freeze interest rates on subprime adjustable-rate mortgages (ARMs) for many homeowners.
“Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it,” Federal Deposit Insurance Corp. Chairman Sheila Bair said in prepared remarks at an investor’s conference.
ARMs often have a low introductory interest rate for two or three years and then reset to much higher levels.
Roughly 1.3 million subprime ARMs are due for a rate reset between now and the end of 2008, according to data from First American Loan Performance.
Bair proposed that servicers convert only those ARMs that haven’t reset yet and only for borrowers who are current in their payments and occupy their homes. Loans taken out by speculators who don’t live in the homes they bought would not qualify for the automatic conversion.