Friday, December 7, 2007

Talk of gaming White House mortgage plan emerges

From MarketWatch:

Experts worry borrowers may stop paying bills to qualify for reset freeze

A day after the White House unveiled a program to salvage the mortgage market, people are already talking about how borrowers might game the system.

The program will freeze low, introductory rates on some subprime mortgages before they reset to higher levels. Roughly 1.8 million subprime home loans are due to reset in 2008 and 2009. By delaying those resets for five years, more foreclosures may be avoided, possibly stabilizing the housing market. See full story.
One of the main criteria for qualifying for a reset freeze is the FICO score, which measures how well a borrower has repaid debts in the past (the higher the better). Borrowers' income does not have to be checked. See analysis of program.
To qualify for the fast-track program, borrowers must have a FICO score of less than 660 and it can't have increased by more than 10% since they took out their original subprime mortgage.
Because income isn't checked, some experts worry that borrowers who might otherwise be able to afford higher payments will try to lower their FICO score to qualify for a rate freeze.
"The message here is to get your FICO score down," Mark Adelson, a structured finance expert, said. "Don't pay some bills, but keep up with mortgage payments.">>>MORE