Sub-Prime Crisis Solutions? Mortgage Companies Try Again

     In another effort to avoid government imposed solutions, six of the largest mortgage companies are announcing a new plan to deal with the tidal wave of foreclosures caused by ARM interest rate resets raising payments to more than homeowners can afford.

Project Lifeline, to be announced today, applies only if you are already 90 days behind in your payments.

This creates a dilemna for those who are still current, but know they cannot afford the new monthly payment when the interest rate resets.  You have to stop making the payments to be eligible for the program, which will mess up your credit rating, which reduces your chance of getting refinancing.     The only other detail released at this time is that the mortgage companies would hold off foreclosing for 30 days while they try to work something out with the homeowner.

The mortgage companies are already holding off longer than they used to, because they already own way more houses that they cannot sell from foreclosures already completed.

This is another bandaid.

The problem is systemic.   People bought homes with ARMS with artificially low teaser rates.  While rates were low, and home values increasing, they could refinance from one low teaser rate to another.

Now, the perfect storm of declining home values and higher interest rates leaves them with monthly payments they could never afford.

Unless the mortgages are changed to fixed interest, they will not be able to keep their homes.

This is the bankruptcy law reform proposal now before Congress.