Homeowners brace for subprime leap

Marketplace Staff Oct 18, 2007

Homeowners brace for subprime leap

Marketplace Staff Oct 18, 2007


Doug Krizner: There’s a ticking time-bomb in the mortgage market. Initial teaser rates on about 2 million subprime loans will expire over the next 18 months. That means homeowners will see a big jump in their mortgage payments.

There’s been a rush to find new loans with better terms. From WCPN in Cleveland, Mhari Saito reports not all homeowners are getting one.

Mhari Saito: Betty Bohannon had no intention of buying a house. But in 2004, she got a deal too good to pass up. Her landlord offered to sell her the home she’d been renting, and a loan officer gave her an adjustable rate mortgage with low initial rates. The officer told her she’d be able to refinance soon.

Betty Bohannon: When I signed the papers, he sit there and he promised. And I’m believin’ him, not . . . you know, just naive.

Now, three lenders have turned her down for a refinance, and her payments have climbed $300 a month. Like thousands of other homeowners, she’s finding that she doesn’t qualify or can’t afford to refinance.

So she’s asking her lender to change the written terms of her loan.

Countrywide Financial Representative: On your request for modification, we just got that assigned to a negotiator today.

Bohannon: So what does that mean?

Bohannon sits in front of a speaker phone, one of several homeowners on a call with Countrywide Financial. Countrywide services her loan.

Countrywide Financial Representative: We won’t have an update status until they start drawing the documents on it.

Bohannon: Oh. I just don’t know what to say. It just seems like I’m getting the runaround here.

Marc Seifert with the nonprofit housing agency, ESOP, organized the call. He says these days, lenders are now more willing to change loan terms. But he’s had little luck with Countrywide, the nation’s largest mortgage-lender.

Marc Seifert: We get nothing out of these phone calls, except they get to say, “Oh, we’re talking to ESOP on a regular basis.” Well, talking and producing are two different things.

Countrywide declined to comment. In a recent press release, Countrywide says it will modify 25,000 loans this year. That’s not very many against the 9 million loans it services.

Moody’s Investors Service says that loan servicers have modified only 1 percent of subprime loans that reset in January, April, and July. That means homeowners like Bohannon might decide it’s easier to just let their loan go bad.

Bohannon: So, I’ve just made up my mind. If they don’t change it, I’ll find me a place to stay. And then, they can have that house.

In Cleveland, I’m Mhari Saito for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.