Pennsylvania lawmakers today called on the subprime mortgage industry to agree to a voluntary moratorium on mortgage foreclosures to give the state official time to set up a refinancing fund.
The immediate goal is to help borrowers who are facing rate adjustments on "hybrid adjustable rate mortgages." Such loans often have an artificially low fixed rate for two years - known as a teaser rate - and then reset with an interest rate three or more points higher.
Because a boom in subprime lending in 2005, thousands of these loans are set to start adjusting this year.
Some borrowers, who assumed they could always refinance, are facing a $150 hike in their monthly payments. Pennsylvania's proposed rescue program, which an official said could be up and running in 30 to 60 days, would enable a borrower whose house is worth as much as they owe to refinance into a 30-year, fixed rate mortgage.
The program outlined by Brian Hudson, executive director of the Pennsylvania Housing Finance Agency, would require anyone with a credit score below 660 to get credit counselling. Pennsylvania residents making up to $120,000 would be eligible, but Hudson said he expected most participants to have far less income.
It's not clear how the voluntary moratorium would work. On occasion in the past, moritoria on sheriff's sales have been given legal force.