he plan would freeze the interest rates on subprime loans with adjustable rates, which generally begin to increase after a two-year introductory period. Borrowers would instead continue to pay the introductory rate.
The industry and US Treasury Secretary Henry Paulson have agreed to focus the plan on borrowers who can afford their current payments, but could not afford increased payments. Other borrowers, both those able to afford the increased payments and those who can’t even afford current payments, would still face rate increases.
The details – including the duration of the freeze, which could range from one year to seven years – are still being negotiated. But Paulson and other participants say they hope to have a deal by next week. It would be the largest step yet taken to curtail the rapid growth in foreclosures nationwide.
“I’m really happy to hear they’re on this track because they’ve spent so much time talking about counseling and hotlines and 800 numbers and all of this while Rome burns,” said John Taylor of the National Community Reinvestment Coalition, a consumer group that has pressed for stronger action by the Bush administration.
Taylor said a lot of borrowers can still be helped before their payments increase. “The peak is coming in May 2008,” he said. “There’s a million homes lost to foreclosure, but there’s two million more still coming.”
In Massachusetts, more than 24,650 adjustable-rate mortgages will reset to higher interest rates in 2008, according to First American Loan Performance, a California data provider.
For subprime loans with adjustable interest rates made in 2006, the average introductory rate was about 8.5 percent. Those loans will reset in 2008. If they reset at current market conditions, the new rate would be about 11 percent. For a borrower with a $300,000 mortgage, the monthly payment would increase more than $500.