Take Teresa Nelson. Instead of going for an adjustable rate mortgage with its lure of low initial rates, she opted for the security of a 30-year fixed at 7.10 percent for a house she bought in Pinellas Park, Fla. in December, 2005.
"I was well aware of what an ARM meant, and was staying far away from those snake-oil pipe-dream promises," Nelson said. "I also wasn't shopping for a short-term, big payoff investment - I was looking for my home, until I retire."
But many delinquent subprime borrowers who went for low teaser rates that shot up to unaffordable levels are now paying lower rates than Nelson as part of a new round of foreclosure prevention packages. And she doesn't like it.
For example, one subprime borrower had a riskier hybrid adjustable rate mortgage (ARM) with a rate of just under 7 percent that was going to reset in December to 10.5 percent. But last month, as part of a new bailout plan from Countrywide Financial, the lender gave him a rate reduction to 5 percent on his loan, saving him hundreds of dollars a month.
Nelson feels cheated and has little sympathy for people who she believes weren't as careful as she was. "Everybody was seeing dollar signs," she said, "and let their greed get the better of them. So, no. No bail-out, no assistance with my tax dollars. Not one red cent."
She's not alone. Last month, many CNNMoney.com readers expressed outrage to bailouts - whether they involved tax dollars or not - after Countrywide announced good deals for bad loans.
The company said it will refinance or restructure loans or reduce interest for hybrid ARM borrowers whose rates are scheduled to reset. And no one will have to pony up prepayment penalties for retiring loans early.
Countrywide then announced it will rework loans, prime and subprime alike, for any troubled borrower, adjusting payments to reflect what individuals can afford. The company will administer the program with non-profit community advocate, the Neighborhood Assistance Corporation of America (NACA). Some troubled borrowers will escape with refinanced loans as low as 5.25 percent.
Why should help be given, and possible taxpayer money spent, to home owners in trouble?
According to Steve Bailey, Countrywide's CEO of loan administration, there are good reasons, but it's a mischaracterization to say all the foreclosure prevention programs are aimed at irresponsible borrowers.
One of the biggest groups Countrywide targeted - 52,000 subprime hybrid ARM borrowers that it will offer refinanced loans - have good payment histories and low-risk profiles, according to the company.
They typically had credit problems in the past but, according to Doug Duncan, chief economist for the Mortgage Bakers Association, hybrid ARMs have traditionally been the right remedy.
For full story : CNN Money
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