Murky details: A deeper dig uncovers complicated pitfalls.
WASHINGTON - As is often the case in politics, the devil is in the details of the Bush administration's plan to help tens of thousands of Americans with adjustable-rate subprime mortgages avoid falling into foreclosure.
WASHINGTON - As is often the case in politics, the devil is in the details of the Bush administration's plan to help tens of thousands of Americans with adjustable-rate subprime mortgages avoid falling into foreclosure.
The plan, unveiled Thursday, seeks to help 1.2 million homeowners:
The administration thinks half of them may be eligible for refinancing through the private sector or federal housing programs.
The rest might be eligible for loan modifications that freeze their starter rates on adjustable-rate mortgages for five years.
Dig more deeply, however, and the plan becomes murkier. Here's why:
Question:
Are loan servicers required to modify loans?
Answer:
No. It's a voluntary effort by private-sector participants. The administration's assumption is that loan servicers who collect mortgages, and others in housing finance, will do the right thing. But that's up to the home-finance sector.
Q:
What's the sector's track record?
A:
This week's participants made similar pledges during two foreclosure-relief efforts earlier this year. Yet until recently, only about 1 percent of troubled subprime loans had been restructured.
Q:
How do I qualify for refinance or loan modification under the plan?
A:
Homeowners must have at least 3 percent equity in their homes, must be current in their mortgage payments ahead of the pending loan-rate reset, and can't have been 60 days or more behind on payments in the last 12 months.
Q:
How do loan servicers decide if I qualify?
A:
Mostly, they'll use your FICO score - that is, your credit score as calculated by any of the three main credit-rating agencies.
Q:
Will I face a prepayment penalty when refinancing or modifying my loan?
A:
Many subprime loans contain prepayment penalties designed to punish homeowners who try to refinance before rates reset to higher levels. Under the Bush plan, loan modifications freeze the original rate beyond the dates when prepayment penalties expire. So modified loans are free from penalties. But it's iffy for those who refinance. Private-sector participants agreed to facilitate the avoidance of prepayment penalties, but it's not required.