Roundup - Subprime mortgage “Teaser Freeze”

USAToday has a nice, quick explanation of the plan.

The Bush administration, banks, bond firms and mortgage servicers rolled out a proposal Thursday to help people with higher-cost adjustable-rate subprime mortgages more quickly and easily refinance or modify their loans — including freezing interest rates at the initial teaser rate for five years.

This Forbes piece is generally negative about the plan but she was the first place I saw “freezer-teaser” so she gets points for creativity.

And she had the wisdom to quantify how many would be effected by the freeze.

According to analysis by Barclays Capital, the “freezer-teaser” plan applies to just 240,000 subprime loans. The Mortgage Bankers Association reports the number of subprime adjustable rate mortgages at 2.9 million.

It also won’t help the 16% of subprime borrowers who are already delinquent or in default, and it won’t help millions of other homeowners who either will be deemed able to pay the higher rates when they adjust, starting in January, or who have the unhappy circumstance of having a house worth less than their mortgage or a loan that has already reset to the higher rates.

Which, of course, leads to complaints the program is too small, this one in San Diego.

However;

The plan likely will have the biggest effect in neighborhoods already hard hit by foreclosures. Subprime borrowers tend to be clustered, said Raphael Bostic of the University of Southern California’s Lusk Center for Real Estate.

“They’re not randomly distributed,” he said. “There is going to be a concentration of them. That would equate to a flooding of the market if they all go belly up at the same time.”

[Please notice, "Subprime borrowers tend to be clustered." Just because entry level homes in Queen Creek have crashed in price does not mean prices will crash on a luxury home in North Scottsdale. There just aren't a lot of bank foreclosures in North Scottsdale to drive down prices.]

The Wall Street Journal has a very complete article with several cool graphs but it goes off discussing who will be the winners and losers.

I don’t see any losers in this voluntary program… just subprime holders that will be jealous that they weren’t included. [The way things are headed, subprime interest rate freezes will become a new "human right" by the end of next week.]

The deal won’t provide relief to many subprime-mortgage holders: These include borrowers who are now in foreclosure, have already refinanced their homes or are more than 60 days delinquent on more than one payment over the past year. In some cases, people with good credit scores will be excluded. Also left out are those deemed able to afford the higher interest rates scheduled to replace their introductory rates over the next two years.

The initiative could help stabilize falling home prices and rising foreclosure rates, buoy the mortgage market and provide a modicum of comfort to investors watching the housing crisis bleed into the broader economy.

But it also sets what promises to become a battle line as the subprime crisis plays out over the coming election year. Some critics, especially Democrats, say the plan doesn’t go far enough to protect vulnerable homeowners against foreclosure.