Easing pain of rising mortgage rates
Many mortgage holders who took out subprime loans with teaser rates will find those rates climbing within the next two years. Alisa Roth reports government offices and financial institutions are negotiating a deal to help.
A row of for-sale signs (Bob Moon / Marketplace)
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Scott Jagow: A lot of people with adjustable-rate mortgages will be in for a rude awakening. Many of those subprime loans we've heard so much about started off with a "teaser" rate of 7 or 8 percent. In the next two years, those rates will jump up to about 10 or 11 percent. That adds several hundred dollars to a mortgage payment.
But there's word this morning the White House and several major banks are close to a deal to help these people. The idea is to temporarily freeze their rates. Alisa Roth explains.
Alisa Roth: Government offices like the Treasury Department, and companies like Citigroup and Countrywide that are heavily involved in the mortgage business, are negotiating the deal. It's supposed to make it easier for certain subprime borrowers to keep their homes.
The group is still working out the details. Any agreement would be voluntary -- although all group members have promised to go along with whatever they work out.
Sarah Ludwig is executive director of NEDAP, a New York nonprofit that works on economic justice issues. She says the plan sounds like a good start, but says it could end up being a case of too little, too late.
Sarah Ludwig: It's hard to comment without knowing how they plan to determine the affordability. There's another issue here which is that although this is a very important sort of first step, the resetting mortgages are not the only problem out there.
One of the biggest problems, she says, is that many people with homes now in foreclosure couldn't afford the payments to begin with.
An outline of the plan could be finalized as early as next week.
In New York, I'm Alisa Roth for Marketplace.
