From the Wall Street Journal:
Fannie, Freddie Will Offer Lifelines To Struggling Subprime Borrowers
By DAMIAN PALETTA
April 17, 2007; Page A12
The top executives for mortgage-finance giants Fannie Mae and Freddie Mac plan to unveil alternatives that would help homeowners with subprime loans avoid foreclosure, according to prepared congressional testimony.
Subprime loans are made to borrowers with weak or shaky credit histories. Some subprime adjustable-rate mortgages begin with low “teaser” rates for the first two or three years and then reset to much higher monthly payments.
Fannie Mae Chief Executive Daniel Mudd is expected to tell the House Financial Services Committee today that his company is expanding its products to allow subprime borrowers to refinance out of certain adjustable-rate mortgages with these low, teaser rates.
Mr. Mudd is expected to say that Fannie Mae is adjusting its credit requirements so that more borrowers would qualify for this option.
“Essentially, homeowners facing imminent payment shock will be able to refinance into our loans without first having to clear up unpaid bills on their credit reports,” Mr. Mudd is expected to say.
The government-sponsored enterprise also plans to broaden the number of lenders offering certain subprime assistance products to 2,000 from 500.
Mr. Mudd also plans to say that Fannie Mae will purchase 40-year loans on the secondary market in addition to the more traditional 30-year loans. “This will shave the monthly payment by about 5%, and it will allow many more borrowers to qualify,” Mr. Mudd is expected to say.
I thought Fannie/Freddie’s bloated portfolio presented systemic risk. Now they are going to expand that porfolio by dropping their standards?
Will these rates be subsidized or market based? If they aren’t subsidized, will this really help? Many couldn’t afford homes without teaser rates in the first place.
I’m assuming these people will have to qualify for these loans using full doc. In that case, it elliminates most of the people who need the loans because their debt/income ratios are 100%
I can’t believe F&F are considering large portions of 40-year fixed loans. These loans offer very little benefits to borrowers. Payments are not significantly lower, and interest paid is massive in comparison to a 30Y. Why not just put the borrower into an I/O at this point? I suppose the 50Y is right behind.
A lifetime of debt servitude?
Japanese style 2 generation loans, it would work around me. Buy a teardown, build a duplex for like a million total. Kids move in side 1 parents in side 2.
Thats how ya do it in the Fort Lee/Pal Park/duplex city yo!
once again the legit taxpayers and homeowners who pay their bills get screwed.
Monthy payment $350,000 mortgage at 6.5% for 30 years – $2,212.24
Monthy payment $350,000 mortgage at 6.5% for 40 years – $2,049.10.
$163/mo savings is sure worth an extra $245,880 in total costs to me!!!!!
“$163/mo savings is sure worth an extra $245,880 in total costs to me!!!!!”
I agree. Unfortunately,the majority disagrees. They would opt for a 100 year plan, if available.
I forgot to add the rate premium that a 40 year mortgage would have. Rates will be higher on a 40 year than on a 30 year. That makes the savings even less than $163/mo and total costs even more
So, I guess I can sue for discrimination since I had to go through a loan process, state every ounce of blood I own and put 20% down when I purchased.
Does age ever come into play? Does a bank ever say, we’re not giving a 30yr mortgage to a 60 yr old because they could be dead before the loan is fully repaid? Or do most loans not go the full 30 anyway, so they don’t care about age?
If yes, could that now move to the we’re not giving a 40 or 50yr mortgage to a 40 yr old?
There’s no mention about appraisals. If you need a subsidy, than you probably have little if any equity in the house. You bought for $500k in 2005 and now the house is worth $450k. Is your new 40 yr mortgage refinance going to be for a $500K loan with a $450k appraisal or will they continue to fudge the appraisals?
bergenbuyer Says:
‘Does age ever come into play?’
No, that would be considered discriminatory and is illegal. 100 year olds can take out 50 year mortgages no questions asked.
‘You bought for $500k in 2005 and now the house is worth $450k.’
Right now, it’s all just lip service. FNMA will only strretch the rules so much to do these loans. Otherwise, they’re just plain suicide loans that will go into default no matter what. It doesn’t make any business sense at all to consider loans that are too far outside of traditional lending methodology as a Public Relations effort. FNMA is not a charity.
Subprime bailout will cost TAXPAYERS $120b ????
Subprime bailout? $120 billion
More than 1 million borrowers may be at risk of defaulting on their mortgages. Assisting them all wouldn’t come cheap.
By Stephen Gandel, Money Magazine senior writer
April 13 2007: 4:21 PM EDT
NEW YORK (Money) — Want to pick up the check for every homeowner who got saddled with a risky mortgage? It’s a big one – on the order of $120 billion.