It is obviously less expensive to have the borrowers continue to service the loan even at a slight loss to the mortgage holder than it is to foreclose and take control of a property that is worth significantly less than they loaned against it.
At a minimum the “reset” dates should be spread out over as much time as possible so they don’t all come due over a short period. With some time house prices will start to recover. The financial situation of the borrowers may be improved in a few years as well.
With some time house prices will start to recover.
What, back to top-of-the-bubble levels? They need to come down about 40% from their peak and stay there.
Are even the teaser rates a loss? I doubt it. What were the intro rates?
Only if it doesn't take one penny of tax dollars and/or tax credits.
This raises a lot of questions. The credit derivatives based on these loans will now face lower payments. If market rates float higher, and these mortgages and contracts are forced downward, how will they effect valuation? Will the insurers be on the hook for the difference? How exactly do you determine who gets the rate freeze, and who doesn't? Moral hazard is imminent. Some will be better off falling behind to get the rate freeze, or will they(?)