Mortgage Foreclosure & Refinance Resource

It’s been widely reported, that the government is working on a plan to broadly rework adjustable rate mortgages (ARMs) for all borrowers who qualify and freeze their interest rates before they jump to unaffordable levels and end up having negative amortization.

But investors in mortgage-backed securities, who buy the loans wholesale from lenders, aren’t exactly jumping on board.

“You have contracts in place guaranteeing investors a fixed rate of returns,” said Jim Carr, Chief Operating Officer of the non-profit advocacy group, National Community Reinvestment Coalition. “They have no immediate incentive to give up those returns.”

Contracts between lenders and investors typically state that servicers can modify up to five percent of loans within a group without clearing it in advance. But modifying a higher percentage requires approval. The reworks called for by Secretary Paulson would probably exceed that five percent threshold in many cases.