Possible ARM Swapping????

I recently read an article on Money Magazine's website that addressed the possibility of the government and lenders allowing some borrowers with ARMs to swap them out for fixed rate mortgages.

Speakers at a Congressional hearing of the House Financial Services Committe called for restructuring ARM loans to help solve the subprime crisis.

A Congresswoman from Ohio (which apparently leads the nation in the foreclosure rate) recommended the following three-prong approach:


- Establish a rescue fund for short-term problems casued by illness, layoffs, or other one-time events.

- Create a bond fund to pay for switching borrowers out of unaffordable ARMs.

- Refinance loans for victims of predatory lending.

These measures also calls for lenders to agree to modify the terms of existing loans to prevent the higher costs of foreclosing on properties. This suggestion may work because it costs more to foreclose on a property than to accept lower returns on existing investments. According to the article 10 to 15 percent of the value of a property may be eaten up by the foreclosure process.

If it could be pulled off, this may be very helpful for the housing market as a whole as well as the economy.

Here is the link to the original article Subprime solution: Swap ARMs for fixed-rates.