Freezing Adjustable Rate Mortgages

Henry Paulson, the Secretary of the Treasury, is confident than an arrangement may be in place for a freezing of adjustable rate mortgages for homeowners. The current plan is to freeze ARMs for financially responsible borrowers, whatever that means, for a period of anywhere from one to two years to as many as five or seven. This would help the housing market recover what is the worst housing slump in at least twenty years.

An estimated 2 million subprime mortgages, loans offered to borrowers with spotty credit histories, are scheduled to reset to much higher levels by the end of 2008. Those resets will push the payment on a typical mortgage up by $350 per month, taking it from $1,200 currently to $1,550.

What does this mean for you if you’re going to take an ARM rate increase? Not entirely sure because they haven’t been clear on who will be eligible other than to say that it’s “financial responsible” borrowers who can “make the lower payments, but not the higher ones.” Which really is a bunch of baloney to me because everyone fits that description. If you couldn’t make the lower payments, you wouldn’t be in trouble because you wouldn’t be in homes. It’s the adjustment that’s killer.

We will have to wait and see how this shakes out.