THE RATES FREEZE GAMBLE.

Hello dear friends, this is me again bringing you the latest in the mortgage saga. President Bush announced the industry sponsored rescue plan last Thursday. He clearly stated that this was not a government bailout plan designed to help lenders.

The plan known as HOPE NOW is backed by lenders and servicers who represent 84% of the known sub prime loans that will reset. This plan eliminates 16% if the sub prime mortgages off the bat. Next, it only covers borrowers who have less than 3% equity in their homes!

The likely qualifiers are people who either purchased their homes with no money down (100% financing), those whose refinanced up to 100% of the value of their homes or the average homeowner who is seeing his equity disappear because the market has tanked.

BIG QUESTIONS:

1. How are they going to determine the 3% equity: using the initial loan parameters or with the help of a new appraisal?

2. If the new appraisal comes up with a lower valuation, are they going to modify the loan amount and accept a short sale, or the borrowers will continue to carry loans that are not in line with the current market?


3. The irony here is that the plan is asking people who have already gambled and lost to gamble again: if you lost on a 2 or 3-year ARM, take a 5-year ARM now and see if you win!

4. What happens to the rates after five years?

5. Who is monitoring this program?


There are so many unanswered questions that it is becomes apparent the program is a poor excuse for the government's unwillingness to seriously deal with the crisis. Tired of being accused of doing nothing, it lent support to a program that does little for most sub prime borrowers, but lets lenders bail themselves out with its blessing.

This freeze program should be the last option that a borrower may consider. An appraisal to determine the current market value is definitely required before taking another gamble with a program based solely on hope. Hope that the borrower will be able to refinance, that the equity will somehow re-appear, and the interest rates will be lower than the "frozen" ones. That is a lot to hope for.

Send your comments to imailto:onfo@p2funding.com