A.M. Best Special Report: Banks, Lenders Urged to Do More for Troubled Mortgage Loans.OLDWICK, N.J. -- As more homeowners face foreclosure foreclosure Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. , regulators and lawmakers have urged banks and lenders to modify upwards of 1.8 million hybrid adjustable-rate mortgages Adjustable-rate mortgage (ARM) A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or (ARMs) made to subprime borrowers. These ARMs, with below-market introductory "teaser teaser an animal used to sexually tease but not to impregnate the members of the opposite sex. Usually males and they may be surgically prepared to ensure that they cannot mate or are not fertile. " rates typically for two or three years, will reset in 2008 and 2009 to interest rates that are substantially higher than market rates. * Under guidelines unveiled in December and negotiated by the U.S. Treasury U.S. Treasury Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. Department with the mortgage industry, potentially 1.2 million subprime borrowers with hybrid ARMs could qualify for affordable refinancings or loan modifications that freeze initial interest rates for five years. * Another initiative launched in February to avert foreclosures targets homeowners with loans that are delinquent by 90 days or more. It includes subprime loans Subprime Loan A loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Notes: Subprime loans tend to have a rate that is 0.1% to 0.6% higher than the prime rate. and other mortgage products. * As more hybrid ARMs approach their initial interest-rate resets, more borrowers may find it difficult to refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. into affordable loans because of tighter lending standards and lower home prices. * Lawmakers and regulators have pushed for rules that would compel lenders to make monthly disclosures on their efforts to help subprime borrowers modify the terms of their loans. * Proposed federal legislation for new mortgages would require brokers and lenders to assess a borrower's ability to make payments over the life of the loan, rather than just the "initial" teaser rate Teaser rate A low initial interest rate on an adjustable-rate mortgage to entice borrowers, that is later eliminated and replaced by a market-level rate. period. * The Securities and Exchange Commission provided interim guidance in January that the streamlined process for loan modifications met accounting guidelines for securitizations. BestWeek subscribers can download a PDF (Portable Document Format) The de facto standard for document publishing from Adobe. On the Web, there are countless brochures, data sheets, white papers and technical manuals in the PDF format. copy of all full special reports at no additional cost or a combination of the PDF copies plus all related spreadsheet files of the report data at no additional cost from our Web site at www.bestweek.com. Nonsubscribers can download a PDF copy of the full special report (8 pages) for $55 or a combination of the PDF copy plus the spreadsheet file of the report data for $140 from our Web site at www.bestweek.com. Call customer service for more information, (908) 439-2200, ext. 5742. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com. |
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