Regulators putting pressure on subprime lenders to reset interest rates.

The Wall Street Journal reports that federal and state banking regulators are putting preesure on subpime lenders to “modify” the interest rates on their variable loans to avoid foreclosures. Nearly three-quarters of all subprime mortgages have variable rates. Usually they were sold with a two or three year fixed “teaser” rate which then resets and becomes variable.

1.3 million subprime mortgage loans will reset this year, and 1.2 million next year. A large percentage of these are thought to be at risk if the loan amount is allowed to jump to the variable rate.

As we have said before resetting rates to a reasonable fixed rate shoud be a win-win solution for many situations. With prices going down, foreclousres usually result in big losses for the lender, as well as loss of home for the borrower. “Modified” loans at rates thet borrowers can manage can be good for everyone.

For info on different mortgage terms, click here.

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