MORTGAGE RATES FREEZE: IS IT FOR YOU?

The more I look at the proposed so called "frozen teasers" the harder it gets to really find who may ultimately benefit from it.

THOSE WHO ARE OUT.

1. Mortgages for non-owner occupied homes,
2. Home who are delinquent on their mortgages,
3. Mortgage secured after July 2007 and before January 2005,
4. Home owners who can afford the higher payments associated with the reset,
5. Borrowers who have already lost their homes.
6. Home owners who do not qualify for the current payments.

THOSE WHO ARE IN.

1. Mortgages issued between January 2005 and July 2007 and resetting no later than December 2010,
2. Home owners who are current with their mortgage payments.

PROFILE OF THE TYPICAL BENEFICIARY.

Based on the characteristics of the freeze program, the individuals who will end up benefiting are those who occupy the homes as principal residences, their mortgage is current, their credit and income will not allow them to qualify for the new payments.

HOW ABOUT DECLINING VALUES?

The program ignores this critical component of the lending equation. The parameters of this this program implicitly freeze the value of the collateral. This makes the program unrealistic and somewhat dangerous because it operates under the assumption that the subject property is, or will be worth at least as much as when the loan was initially originated!
Jumping on the rates freeze bandwagon without checking the current property values may be disastrous if the market does not rebound causing some home owners not to qualify for refinance at the end of the freeze period.

The rates freeze program's impact on reducing foreclosures and further stabilizing the real estate market seems very limited due to its scope and structure. It is not mandatory, it does not deal with current market values and its implementation lacks transparency. I expect it to benefit less than 10% of the 2,000,000 mortgages due to reset before the end of 2008.
I would recommend to anyone contemplating this program to also investigate a short sale before deciding what is best for him or her.

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