Articles
White House Announces Sub-Prime Loan Rate Freeze
by Ugur Akinci, PhD
December 6, 2007
After the recent sub-prime mortgage meltdown something had to give.
Either a mechanism had to be found to prevent millions of Americans getting crushed under the soon-to-skyrocket interest rates of the ARM loans...
... or a tsunami of foreclosures and bankruptcies would certainly hit the land.
After discussions with Wall Street firms and all the major mortgage companies, President Bush stepped in on December 6, 2007 and announced freezing the interest rates up to five years for those sub-mortgage borrowers who might not be able to afford higher interest rates in the years ahead.
The freeze is applicable only for the loans taken out between January 1, 2005, and July 30, 2007.
One important condition is that the sub-prime holders need to be in good standing and making their payments regularly.
ARM, or Adjustable Rate Mortgages, usually start at a deceptively low (sub-prime) interest rate but after a period of (typically) 3 years switch to a much higher rate to compensate for the initial super-low rate.
Many low-income home owners took advantage of such too-good-to-be-true rates within the last three years and bought homes that they probably could not have afforded under normal circumstances.
The ARM rates are expected to go up sharply after January 1, 2008, triggering wide-spread foreclosures. Since home ownership has an important multiplier effect and impacts pretty much everything else in the American economy, the move by the White House and the Treasury officials was looked upon as a measure of last resort.
The President has also announce that those sub-prime holders in distress can call the Federal Hot Line number 1-888-995-HOPE for a confidential consultation.
