Monday, December 03, 2007

State Mortgage Agencies to Help Refinance Subprime Loans

US Treasury Secretary Henry Paulson announced today a plan to enable State Housing Agencies to use tax-free bonds to help refinance at-risk homeowners. Similar to the FHASecure
initiative that HUD is offering, it represents another effort at the government level to innovate solutions to help homeowners unable to refinance high-interest rate ARMs. This programs, like the FHASecure program, will be offered via participating lenders who will underwrite according to the state agency guidelines.

In separate news, Eric Rosengren the President of the Federal Reserve Bank of Boston emphasized in a speech today, that dropping housing prices, not subprime loans, are the chief cause of the foreclosure crisis we are now experiencing. In his speech, he referenced a study done by the Boston Fed and the Massachusetts Institute for a New Commonwealth, further noted that the average "teaser rate" for subprime loans was a relatively high 8.5%, and the core problem is that borrowers can no longer qualify to refinance these loans into a fixed rate, as planned - because their equity has evaporated.

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