Who Qualifies

Some Straight Talk On the Mortgage Mess

It seems that hardly anyone will qualify for a rate freeze:

I watched the presentation today and found it interesting that the plan details were not really discussed on camera. After everyone spoke in generalities, they seemed to take a break before going somewhere else for a technical discussion. It seems the details were buried.

After looking all over the place on the Internet, I found a link to the details of the plan here:

www.smartmoney.com/con...

Among the specific details are the 97% OR HIGHER LTV limit (no more than 3% equity) which didn't seem to be mentioned by anyone that I heard:

The much-talked-about five-year rate freeze, on the other hand, will be available to anyone who doesn't qualify for a refinance, particularly folks with low credit scores and little or no equity in their homes.

To qualify for a rate freeze, the loan-to-value ratio on your home must be 97% or higher, which means you must have no more than 3% equity in your home. (This is the loan-to-value ratio during the origination of the loan, so the recent decline in housing values doesn't come into play here.) Then, mortgage servicers will apply a newly-created FICO test. Basically, if your FICO score is 660 or below (scores range between 300 and 850), and it hasn't increased by at least 10% or more since your score at the time you took out the mortgage, you pass the test and qualify for a five-year freeze.

If your score is above 660, or has improved by 10% or more since loan origination, the servicer will look into your financial situation more closely to determine if you qualify. They might consider your income, current debt levels, and any other factors the servicer may deem necessary. This, of course, will take time since such cases will need to be reviewed individually.


What's even stranger is in this report that gives a great amount of detail of composition of the subprime market (as of December 2006):

www.responsiblelending...


On page 47 of the PDF file, Appendix 3 it shows for 1998 - 2004 how much of each type of subprime loan was made. So using the latest year, 2004 as the guide:

-Only 5% of subprime had an LTV greater than 97%.

So for the 5% who pass that hurdle, I would have to imagine these were not likely to be the under 660 FICO's.

But suppose they were just as likely to be.

Then:
-About 60% had a FICO less than 660.

So, we're down to about 3% who might qualify (5% x .6).

And then, 3/4 of those who were not fixed rate:
-About 75% were not fixed rate.

So we're down to about 2%.

Someone check my math on this, but it sounds like best case we're looking at 2% who qualify based on the info in this report. And maybe even less if you assume only the higher FICO's could get 97%+ LTV.