Clark Howard's Tips
Bush unveils voluntary plan for homeowner aidDecember 7, 2007
Clark wants to discuss President Bush's announcement about a voluntary plan for people in mortgage meltdown to receive assistance from their lender.
Those who took out blow-up mortgages like 2/28 loans in the last few years and have been current on their payments are most likely to benefit.
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CLARK'S TIP TOPICS
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2/28 loans are typically offered to first-time homebuyers or people with damaged credit. The homebuyers were conned into 2-year loans at a decent rate that becomes outrageous after 24 months. Sometimes the blow-up rate will put the annual payments near or equal to the homeowners' annual income.
Under Bush's plan, lenders can voluntarily freeze the interest rate for 5 years if it's a homeowner's primary residence and they've made timely payments for the first 2 years.
This will not help speculative buyers who got into 2/28 loans. Ironically, there are protections under bankruptcy law for spec buyers that don't apply to owner-occupied property.
Clark thinks it's reasonable that there shouldn't be any coercion on lenders to freeze the rate. If the government were to try to impose its will, it would have a negative effect on the confidence of investors making loans. After all, why should an investor take on the risk if the government will just come in and decide how much money they'll be able to earn back?
Some lenders would be wise to freeze the interest rate; it's a much cheaper option than having to pay to foreclose on tons of properties. Nobody wins in those situations.
