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Is Relief Needed for Prime ARMs Too?

Treasury secretary Henry Paulson hinted last week that the "teaser-freezer" program for subprime borrowers may need to be expanded to prime borrowers who are facing problems making payments on their adjustable-rate mortgages.

The Treasury secretary said Hope Now servicers are working at an "intense pace" to implement a systematic approach for assisting subprime borrowers who are expected to fall behind on payments once their 2/28 or 3/28 ARM resets to a higher rate.

"We expect most servicers to begin fast-tracking borrowers in the next few weeks," Mr. Paulson told the New York Society of Securities Analysts last week.

He also stressed that Treasury needs to monitor this restructuring effort to measure its effectiveness and to make adjustments if needed. "This may include using elements of a systemic approach for adjustable-rate mortgages other than subprime if it will benefit homeowners and investors."

The next day, the Treasury secretary dropped another hint during an interview on CNBC-TV.

"One thing we will consider," Mr. Paulson said, "is expanding this beyond subprime borrowers to other borrowers."

Working with servicers, Mr. Paulson specifically designed the teaser-freezer program to fast-track subprime ARM borrowers into a refinancing or a loan modification where the servicer freezes the current interest rate and defers the reset for five years.

However, some critics claim the Hope Now effort is too narrowly targeted on subprime borrowers who are current on their mortgages. And it does not offer a systematic approach for helping borrowers who become delinquent before or after a reset. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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