ARM Resets to Hit the Fan in 2008

FDIC Chairman Sheila Bair is urging lenders to find ways to help borrowers keep their homes, and the issue is becoming a talking point among presidential and congressional candidates. “Keep it at the starter rate,” Bair said in October. “Convert it into a fixed rate. Make it permanent. And get on with it.”

Wall Street Journal article.

California just cut a deal with 4 lenders to not reset some loans.

Countrywide, GMAC, Litton and HomeEq – which collectively service more than one quarter of subprime loans to people with poor credit – agreed to maintain the initial, lower interest rate for some subprime borrowers whose rates are scheduled to jump significantly higher. To qualify, borrowers must occupy their homes, have made their payments on time and prove they cannot afford payments with the higher interest rate.

The California rate freeze is temporary.

And here is the reaction of one California mortgage broker who doesn’t like the idea because it will support real estate prices.