Legislation & Lobbying

Teaser-Freezer Subprime Mortgage Rescue Plan Detailed

Updated: Details are emerging of a so-called teaser-freezer plan intended to rescue some subprime mortgage borrowers from huge increases in their monthly payments.

To be introduced tomorrow by President George Bush, the plan calls for a five-year freeze on the initial low “teaser” interest rate for homeowners who are current on their mortgages, according to Reuters. Without the freeze, interest rates could potentially be reset repeatedly during that period.

Citing an unnamed “industry source,” the news agency says the plan applies to “subprime loans originated between January 1, 2005, and July 31, 2007, with rates that are due to reset between January 1 of 2008 and June or July of 2010.”

As discussed in an earlier ABAJournal.com post, Congress, the Bush administration and mortgage lenders are working together to develop programs to help homeowners cope with monthly subprime mortgage payments that can escalate exponentially when initial artificially low terms expire. An explosion of such risky lending in recent years is blamed for a huge increase in mortgage foreclosures and a worldwide credit crunch.

Bloomberg: “Subprime Rate Five-Year Fix Eyed by U.S. Regulators.”

(Updated at 12:25 p.m., central time.)

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