Three of the Washington area’s top subprime mortgage lenders, which made at least one-third of local subprime loans last year, are not part of the alliance that agreed with the White House Thursday to freeze interest rates on mortgages for some subprime borrowers who would otherwise face foreclosure when their rates reset.
Local borrowers tookout 54,007 subprime mortgage loans in 2006, according to federal data compiled by the Center for Responsible Lending. Many of those loans have adjustable interest rates that will jump in 2008 and 2009, pushing up mortgage rates by as much as 30 percent and triggering foreclosure for those who can’t afford the rates.
But it is not clear if those borrowers would benefit from the newly announced deal, since many of them signed loans with lenders that are not part of the HopeNOW alliance.
The company that made the most subprime loans to local borrowers in 2006 — more than 7,600 — is Fremont Investment & Loan, a California company that was ordered by the federal government to stop issuing subprime loans earlier this year because it was operating in a way that “substantially increased the likelihood of borrower default.”
Fremont sold its mortgages to a new, unregulated hedge fund in April. It is not clear who now holds the mortgages, though Fremont may still be servicing some loans.
Fremont is not part of the HopeNOW alliance, and generally has not been willing to modify its customers’ loans, according to Acorn, a nonprofit housing counseling agency that works with loan servicers.
“From what I’m hearing from the counselors, we don’t get great results from them,” said Regan Brewer, Acorn’s homeowner services coordinator.
Representatives from Fremont did not return calls Thursday.
The second-biggest area subprime lender, WMC Mortgage Co., which is owned by General Electric, issued 6,514 subprime loans to area homeowners in 2006. GE closed down that mortgage arm and last month was preparing to sell the mortgages to an undisclosed buyer. WMC and GE were also not listed as part of the alliance.
New Century Mortgage, which recently went bankrupt and sold its mortgages to Carrington Mortgage Servicers, issued 3,248 subprime loans to Washington-area borrowers in2006. Carrington is not listed as part of HopeNOW.
Two of the region’s top five lenders are part of the alliance — Countrywide and Washington Mutual. Together, they issued more than 6,700 subprime loans to area borrowers in 2006.
Many of the rest of the area’s top subprime lenders have gone bankrupt, been shut down or been sold.
Foreclosures already have hit some areas in the region hard, particularly parts of Northern Virginia.
One out of every 82 households in Prince William County was in some stage of foreclosure between July and September of this year, according to data provider RealtyTrac.
One out of every 87 households in Loudoun County, one out of every 213 houses in Fairfax County and one out of every 353 houses in Montgomery County entered foreclosure during that time period.
Highlights of mortgage plan
Major details of the plan announced Thursday by the Bush administration to provide a five-year freeze on mortgage rates for borrowers facing the threat of default on subprime mortgages. Those are loans to people with spotty credit histories.
» Who qualifies: People with subprime mortgages who live in the residence covered by the mortgage. That feature is designed to exclude investors who bought properties and hoped to benefit from the surge in home prices. The borrowers must be current with payments on the mortgages at the lower “teaser” rates.
» What time frame: The loans had to be taken out between Jan. 1, 2005, and July 31, 2007, and have interest rates that will reset between Jan. 1, 2008, and July 31, 2010.
» What happens: The subprime mortgages, many taken out with rates of around 7 percent to 8 percent, are scheduled to reset at much higher rates of up to 11 percent. That increase could add $350 to the typical monthly payment of $1,200. Under the freeze, the rates will remainat the lower introductory rate for a period of five years.
» Economic impact: The administration hopes the plan will buy time for homeowners about to be forced out of their homes. Limiting the number of mortgages going into default will keep down the number of homes being dumped onto an already glutted market. As the housing market stabilizes and sales and prices rebound, homeowners with the frozen mortgage rates will have time to refinance into more affordable fixed-rate loans.
– The Associated Press
Chris Weaver and Examiner Staff Writer William Flook contributed to this report.
