Are you protected under the new housing plan?
Yesterday (December 6, 2007), President Bush and Treasury Secretary Henry Paulson announced an industry-led "promising new source of relief for American homeowners" facing interest rate increases in their adjustable rate mortgages.
The first thing to understand about this plan is that it's not a government plan. The White House, eager to appear as though it's doing something about the situation, has been noodging the mortgage industry for months to figure a way out of the mess. These lenders, realizing that many of the loans they hold are nearly worthless (since the borrowers face rate increases that they won't be able to afford on homes which are leveraged so high that there's no equity to grab in the foreclosure process and a real estate market so flooded with inventory that they'd face six to nine months' holding time before they could sell off a foreclosed home anyway) figure they can save themself some grief by helping a limited group of people.
So are you protected?
The Wall Street Journal quotes the Office of Thrift Supervision Director John Reich in saying that the plan will help "tens of thousands" of homeowners. Tens of thousands, when we're expecting 750,000 foreclosures in the next couple of years.
People who do qualify:
- Have an income and live in their homes
- Currently making their payments on time
- Would default if their interest rate increased
- Took out their ARM between 01/05 and 07/07
- Have an interest rate increase scheduled to occur between 1/08 and 1/10
People who don't qualify::
- Have missed a payment
- Can afford their mortgage rate increase
- Don't have an income
- Own homes which are worth less than their mortgage
You may be happy to hear that I almost qualify for this plan (I took out my mortgage in December, 2005 and it's set to increase in January, not that I'd default on my mortgage if rates went up) -- but there's no way I'd take advantage of it. Right now the "teaser" interest rate on my adjustable-rate mortgage is 6.500%, but I'm refinancing into a 30 -year fixed rate loan at 5.750%. (Click here to see if you qualify for a 5.750% 30-year fixed rate loan.)
Don't miss the bullet point that says that if your lender thinks you can afford the higher payment, you're disqualified from the plan.
A large part of the group of people whom this plan might actually benefit could probably refinance anyway -- and interest rates on long-term, fixed-rate loans have recently hit 24-month lows and are not far from the lowest rates in 40 years.
Quick interest rates
| Program | Rate | APR |
| 30 year fixed | 6.375% | 6.623% |
| Jumbo fixed 30 | 8.500% | 8.652% |
| 5 year ARM | 5.750% | 6.159% |
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