“None of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,”

Thus spake David Sambol, the president and chief operating officer of Countrywide, in an official statement today. But is that really fair? I mean, I’m not advocating throwing people out into the street or anything, and I don’t like to see people go into financial ruin, but when you sign up for an adjustable rate mortgage…. you’re signing up for an adjustable rate mortgage. That means that the rate ADJUSTS. You should be ready for that. It shouldn’t be a surprise.

I know, I know, most people bought houses on ARMs, counting on the increased value of their home to allow them to refinance to a fixed rate mortgage within a year or two. I was pretty young and green to real estate when I first bought my duplex, and did exactly that. Luckily, the market was still cooperating with me at that point. But if it hadn’t been, I wouldn’t be looking to the government or my mortgage company to bail me out… I knew that I was taking a risk. Gambling. Speculating. People have somehow lost sight of what trying to predict the market actually means (that would be gambling).

More about Countrywide’s statement, from Bloomberg.com:

Countrywide Financial Corp., the biggest U.S. mortgage lender, may change terms on $16 billion of adjustable-rate mortgages before the end of 2008 so borrowers won’t lose their homes to foreclosure.

About 52,000 customers who hold subprime loans can refinance into prime and government-backed loans, the Calabasas, California-based company said today in a statement. Such loans usually carry lower rates. Terms will be eased for another 30,000 who may fall behind or have already missed payments when their adjustable rates rise.

Treasury Secretary Henry Paulson last week called the housing slump “the most significant current risk to our economy” and urged lenders to modify and refinance more loans. Countrywide has been the target of protests by housing advocates who say the company has done little to help homeowners with overdue payments or to halt foreclosures, which set a record in the U.S. during the second quarter.

“This is a big step,” said Bruce Marks, chief executive officer of Neighborhood Assistance Corporation of America. “Countrywide sets the standard for servicing and how lending gets done.” The Boston-based advocacy group has demanded Countrywide make loan modifications easier. The company’s willingness to cut interest rates without penalty payments is a welcome move, Marks said.

Countrywide fell 42 cents, or 2.7 percent, to $15.26 at 11 a.m. in New York Stock Exchange composite trading. The stock has declined 64 percent this year.

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4 thoughts on ““None of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,”

  1. So true. We did the same thing with our 1st home 4 years ago. Luckily, the market was still climbing and we refied to a fixed 30. Nowadays, that wouldn’t work. But also nowadays, we probably couldn’t get a loan, because we could not have saved for a California-sized 20% down payment in that time. Here are the (approximate) numbers:

    $1500 mortgage minus $800 apt cost is $700. $700 saved per month for 4 years is over $33k. That could work as 10% down, but qualifying would have been more difficult without having a good mortgage history. And even in the current market, we could likely sell our house for at least $50k more than we paid for it, so we’re still ahead of the game compared to saving alone.

    Thanks for the great blog, by the way! We’re considering purchasing a duplex and living in one half when we move in a year or so.

  2. Please disregard my rent vs buy scenario. Overly simplified! I didn’t account for taxes and maintenance.

  3. Well. Got a better idea? It’s a pretty complicated problem, and it’s @#$%ing up the rest of the economy now. There’s no good solution. Only a least bad one.

  4. You’re right. If not for the issue of it messing up the entire economy, i’d say that they should all get exactly what they signed up for… but a huge crash in the economy affects everyone, so it does sort of become everyone’s problem. Not fair to the people who bought and financed more carefully, but I guess that’s the way it goes sometimes….

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