Rate freeze is “going to be a mess”

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There seems to be enough interest in plans for a sub-prime mortgage rate freeze to warrant frequent updates, so here goes: The New York Times tonight reports the Paulson plan ‘could help only a small number’ of sub-prime borrowers -- it cites a new estimate by Barclays Capital that ‘a similar effort in California is likely to help about 12 percent of borrowers in the state with adjustable-rate subprime loans.’

More: ‘... industry analysts and executives were skeptical about the government’s ability to produce a high-speed approach to handling thousands of cases with a few simple principles. ‘There is no cookie-cutter approach that can be taken to this,’ said Bert Ely, a longtime banking consultant in Alexandria, Va. ‘This is going to be a mess.’

One of the messier questions: Assuming the program being pushed by Treasury Secretary Paulson (pictured) is open only to borrowers who can’t afford a higher payment, how does the lender determine whether the borrower can afford a rate reset or not? How deeply does the lender delve into the borrower’s personal finances? Sharon Greenberg of Barclays predicts loan-servicing companies would end up looking closely at borrower’s monthly budgets, right down to how much they spend on cable TV service.

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Photo Credit: Treasury.gov