Mortgage Rate Freeze: Who Wins and Who Loses

by Roberta Murphy

This months hot real estate question:

Which homeowners will benefit from President Bush’s recent interest rate freeze for subprime loans? And who will be left out in the cold? It’s a question on the mind of both mortgage and real estate professionals alike.

Drumroll.

The winners, who may receive a five-year extension (and possibly even longer) on their low introductory mortgage rates, are those:

• Whose mortgage loans are truly subprime. Traditional ARM mortgagees apparently need not apply.
• With FICO scores at or somewhat below 660.
• Who originated their home loan between 2005 and this past July 30.
• Who are relatively current in their mortgage payments.
• Who cannot afford higher monthly payments.
• Who have less than 3 percent equity in their homes.
• Who actually live in the mortgaged property. Investors need not apply.
• Whose mortgage rates are due to reset in the next two years.
• Who call their loan servicers, and begin the application process. Dont expect them to call you.

The losers appear to be everyone else in San Diego, but most particularly those:

• Who are already facing foreclosure of their San Diego home.
• Who have already refinanced their homes.
• Who are more than than 60 days delinquent on more than one payment in the past year.
• Who have high FICO scores (above 660, it appears).
• Who have prime adjustable rate loans.
• Who can afford the mortgage rate reset.

Nationally, it appears that around 1.2 million borrowers may be considered for this introductory rate freeze. Some will be offered the opportunity to refinance, particularly if there is sufficient equity in the home to do so. It is widely expected that around 600,000 will actually qualify for the rate freeze.

How many homeowners will fall into this total is unknown; however, we are reaching out to our clients and readers and advising them to contact their lenders to see what options might be available. We will be following those results with great interest and would appreciate hearing from anyone who has gone through the application process.