A Bush administration proposal to freeze interest rates on certain subprime loans for five years could give thousands of Houston-area homeowners the relief they need to save their homes from foreclosure.
The White House released details today on a plan that would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1 and July 31, 2010.
Based on new and existing home sales, local economist Barton Smith says about 37,000 adjustable-rate mortgages — or ARMs — will reset by year's end in the Houston area, jumping to 50,000 next year.
And considering that the highest percentage of ARMs that went to people with subprime or poor credit will adjust to new rates in 2008, potentially thousands of cash-strapped borrowers could end up defaulting on their loans or losing their homes to foreclosure. "The consumer is stressed out right now with all other kinds of debt," said Smith, director of the Institute for Regional Forecasting at the University of Houston. "These resets are coming at a very bad time," he said.
Across Texas, of the estimated 91,600 subprime ARMs that had yet to reset as of the end of September, 66.8 percent will do so in 2008, with the biggest chunk coming due from March into the summer, according to estimates from First American LoanPerformance, a San Francisco research firm, which does not disclose city-specific data. Adjustments fall off significantly in 2009.
Without the federal assistance, Smith and other experts predict high foreclosure and delinquency rates through next year, peaking in the summer. While freezing rates helps lenders spread out their bad loans over an extended period of time, "sooner or later those interest rates have got to go up. It doesn't solve the basic problem," said Smith.
Source: www.chron.com , By NANCY SARNOFF Copyright 2007 Houston Chronicle, Dec. 6, 2007
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