Why do they need an agreement to do this? Why do they need the government to be involved in this? If freezing subprime rates helps keep these people out of foreclosure, then why don’t the mortgage companies just do it without waiting for government to act?
My answer: The leaders of the mortgage companies are so used to relying on government to provide the solution to all their problems that they can’t deal with the concept of individual responsibility. They can’t think for themselves.
And that works well, because the government is anxious to take credit for everything that happens that is good anyway, so they of course want it to appear that this was their idea.
Any loan backed by Fanny Mae or Freddy Mac would likely have to have government approval to change any aspect of the terms.
Why do they need an agreement to do this?
Because dollars to donuts, the gubmint is going to re-write the tax code to accomodate them.
From a former regulator of lenders, they probably are negotiating an exception from TILA (Truth in Lending Act) that will permit the lender to unilaterally change the terms of the loan without having to renegotiate with every single borrower individually. Just a thought.
It's like unilateral disarmament, nobody wants to go first, and risk being the only party to do so. If every lender were to sit down and agree to do this, they face antitrust law. However, if they do it in partnership with the government, they don't have this problem, plus they get a possible enforcement mechanism against any stray lenders who try to renege on the deal.
The lenders all know that 1) Interest rates are coming down, and the government will use this agreement to put pressure on the Fed to make sure of that; 2) Jacking up the rates to the full extent allowed by the adjustable rate mortgage agreements will send a lot of their collateral into foreclosure; and 3) They already have their hands full with declining home values and borrowers walking away from houses that are worth way less than is owed on them, even on the fixed rate loans.
Actually the lenders and other bag-holders are hoping to devise a 'solution' that sticks the taxpayers with all their bad loans, so they have to get the government involved. You're not supposed to notice that their explanation doesn't make sense, so please shut up. Thank you for your cooperation.