On December 5, 2007 the Federal Government decided to enact a 5 year Rate Freeze on the payments of some homeowners with subprime mortgages who purchased their homes between January 1, 2005 and June 30, 2007. The homeowners who qualify for this federal break will still have to make their mortgage payments based on their newly frozen rate.

Ventura County residents now have many concerns regarding this new decision by the Federal Government. Concerns such as:

Will this decision made by the Federal Government help those homeowners in trouble?

The homeowners who qualify for the rate freeze are borrowers with subprime mortgages who can not afford the adjustable rate changes on their mortgages. Only borrowers who have not missed a payment are eligible for this program. Borrowers with lower FICO scores are the first to qualify for the rate freeze.

However, the borrowers still have to make their monthly mortgage payments. The only thing that will change is that their mortgage payments will not increase every time the interest rates go up, well at least for the next five years.

In Ventura County, not all homeowners that are facing financial difficulties or foreclosures are subprime borrowers. The new federal program is of no help to this group of homeowners. 

Will this decision made by the Federal Government help Ventura County’s real estate market?

The purpose of the federal rate freeze is to slow down the rise in the number of home foreclosures all over the country. As subprime borrowers now have support from the Feds, we should notice a gradual reduction in the rate of home foreclosures. 

In Ventura county alone there are currently 4754 homes for sale. Among all these homes for sale there are 1004 homes for sale where the homeowners have received their notice of defaults (Short Sale). With the new Federal arrangement, in the near future, the number of short sale homes and homes facing foreclosure should be significantly lower.   

Will this decision made by the Federal Government change the mortgage market?

With this new rate freeze the investors who hold mortgage backed security bonds are now not getting a return on their investment. As a result there is going to be less investment in the mortgage security bond market. This will reduce the financing choices for even the most qualified homebuyer.

Also, this federal intervention into the private mortgage arena will discourage some private mortgage lenders from future investment.  On the other hand, due to some egregious predatory lending practices of a few, the need for federal oversight will hopefully protect innocent, but vulnerable borrowers such as first-time buyers.

So even though it may be one to two years before the full cost/benefit impact of this “subprime bailout” is understood, the immediate impact to those whose mortgage payments are held constant in spite of rising interest rates is undeniable.