CNN Video on ARMs and Foreclosures, and an idea ....

[moriah]

Saw this story on Youtube, interviewing a Toledo woman who had her house foreclosed. Apparently she paid "nearly $40k" down on a $147,000 home. If you say she put $35k down, a 30-year fixed mortgage is 8.75% for the payment she was making on the ARM, and it jumped to nearly 15%.

http://www.youtube.com/watch?v=X8RNC2BdMrU

Do you think it would be reasonable to legislate a proposal where any bank that accept federal bailout money would be forced to allow a person to continue to make their old payment each month to avoid foreclosure while trying to negotiate an ARM adjustment, if the adjustment would increase a person's monthly payment by more than a certain percentage?

It would help keep people who can continue to make the old payment in their homes -- and those are the people most likely to be able to redeem a foreclosure. It would give people who are in financial difficulty time to sell the house to get their equity instead of having to auction it and likely lose money in the deal for both the homeowner and the bank.

And it would be an option to help the people who were obviously taken advantage of by these scandalous loans. I mean, seriously. What kind of credit did someone have for that to be their best option? I can't think of a single person. Even a person fresh out of bankruptcy has a better rate than that if they look around.

[flvegan]

1. That is legislation I would support 100%.

Sadly, it's a corrective measure to show lenders a proper business model. To take a performing loan and turn it into a foreclosure over a rate adjustment like that is economic suicide when done en masse.

Also, it would be a modification without being a novation, so the lender would NOT lose lien priority. Win win win, all around.