She got adjustable rate mortgages (ARMs) to buy her Germantown home in December 2005; those rates will rise in January; and, she hasn't missed a payment. And yet ...
"Another three years (before the rates rise) wouldn't help me," said Cartwright-Langford, whose monthly payments were slated to rise from $1,500 to $1,900 in January, then go up every six months after that.
Instead, she's going ahead with her plan to refinance those loans into a fixed-rate mortgage under a program started this summer at Memphis Area Teachers Credit Union for homeowners with ARM problems.
"I would rather do that because I want everything to be fixed," she said.
The Bush administration's plan, announced Thursday, encourages lenders to agree to fix the initial rates on adjustable rate loans for three years past the first reset date. It got mixed reviews in Memphis.
"It will have a certain amount of impact, but the catch is, you can't be in default or even have missed one payment in the past," said Phyllis Betts, director of the Center for Community Building and Neighborhood Action at the University of Memphis.
"A lot of our borrowers don't fit into that unblemished category."
Betts follows mortgages and foreclosures closely.
According to center data, lenders made 28,504 subprime loans in Shelby County in 2005 and 2006. This year's pace is about the same as last's, Betts said, which would add about 7,800 to that number.
No figures were available on how many were subprime -- made on terms and at rates less than the best available -- and carry adjustable rates.
Even though it's voluntary, the administration plan is a "radical idea" that will help some people, Betts said.
Such a program would be effective for 10 to 15 percent of subprime borrowers in Frayser, said Steve Lockwood, executive director of the Frayser Community Development Corp.
For many, he said, "It may just stall the inevitable, foreclosure."
But, the three-year window until rates reset "may be enough time for people to crawl back out of their equity hole and maybe have enough equity (value owned in their homes) to refinance at a fixed rate."
And, spreading out foreclosures over several years may be a good thing, he said.
Lockwood was disappointed the program doesn't require borrowers to get credit counseling.
He doesn't think the voluntary nature of the program will hurt results.
"Just recently, lenders are coming to their senses and offering help even before they are asked," he said. "What are they going to do, foreclose and not be able to find a buyer? They read the papers."
Mortgage companies and investors in mortgages are in trouble themselves and may see a "lesser evil" in giving up some revenue to avoid foreclosing on homes on which they lose money, said Ralph McNeely, vice president of residential lending in Germantown for First Horizon National Corp.
Refinancing is out of the question for many borrowers with ARMs, although those loans were often sold to them with the prospect that could be done as housing values rose.
"The real estate market has not cooperated with property values increasing where these things work out more comfortably," McNeely said.
The president's program may bridge gaps to get some borrowers to the point that home prices rebound, he said.
The people who will be helped by the program aren't the ones who need aid most desperately, said Rhonda Gray, director of mortgage lending for MATCU, which is helping Cartwright-Langford refinance.
It's the folks whose payments have gone up already who are hurting the most, she said.
Gray sees very few people like Cartwright-Langford who apply for the MATCU refinance program -- which offers fixed, but not prime rates -- before the interest rates on their loans reset. And she talks to even fewer with no late payments.
"If you're trying to help people, these are the people who need the help," Gray said.
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source: commercialappeal.com
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