As more homeowners face foreclosure, regulators and lawmakers
have urged banks and lenders to modify upwards of 1.8 million
hybrid adjustable-rate mortgages (ARMs) made to subprime bor-
rowers. These ARMs, with below-market introductory “teaser”
rates typically for two or three years, will reset in 2008 and 2009 to
interest rates that are substantially higher than market rates.
• Under guidelines unveiled in December and negotiated by the
U.S. Treasury Department with the mortgage industry, potentially
1.2 million subprime borrowers with hybrid ARMs could qualify
for affordable refinancings or loan modifications that freeze initial
interest rates for five years.
• Another initiative launched in February to avert foreclosures
targets homeowners with loans that are delinquent by 90 days or
more. It includes subprime loans and other mortgage products.
• As more hybrid ARMs approach their initial interest-rate resets,
more borrowers may find it difficult to refinance into affordable
loans because of tighter lending standards and lower home prices.
• Lawmakers and regulators have pushed for rules that would
compel lenders to make monthly disclosures on their efforts to
help subprime borrowers modify the terms of their loans.
• Proposed federal legislation for new mortgages would require
brokers and lenders to assess a borrower’s ability to make pay-
ments over the life of the loan, rather than just the “initial” teaser
• The Securities and Exchange Commission provided interim guid-
ance in January that the streamlined process for loan modifica-
tions met accounting guidelines for securitizations.
2008 Special Report
.S. Bnking – Net Percentage of Banks
Tightening Standards for Residential ortgages (1991-1Q2008)
U.S. Banking – Net Charge-Offs for Loans Secured
By 1-4 Family Residential Property (2003-3Q2007)
PercentBeginning in the sec