"There's definitely pent-up buyer demand. And they're seeing prices come down and it's getting very attractive. You combine that with attractive interest rates, even if it's a short-term program, flood gates could open a little," said Michael Caruso, a real estate broker.
In the past, most loan modifications did little to slow the foreclosure numbers. In fact, California just set a record high of 80,000 in the past three months.
Countrywide's plan would first affect only subprime and option adjustable-rate mortgages. But it could temporarily cut interest rates as low as 2.5 percent. Some loan balances could be reduced as well. In addition, loan payments would be modified so as not to exceed 34 percent of a borrower's verified monthly income.
The additional provisions are where the Countrywide plan makes a big difference. Prepayment penalties and late fees would be waived; and the foreclosure process would be frozen until the loan is modified.
"[I'd] like to see all of those things employed. Waiving late fees is important to people. It starts to drag on them emotionally," said Caruso.
Some Congress members like the plan so much, they may demand that other lenders do the same. But that could meet some resistance.
"If the government starts forcing lenders to make loan modifications, I think that'll have a detrimental effect on lending in the future. Lenders will be less likely to lend and more strict with the rules. Some lenders might get out of the business all together," said David Pemberton, personal mortgage specialist.
It is believed lenders will want some sort of incentive to keep them from losing even more money.
"Even if the government can come in and create some sort of safety net for lenders that would help," said Pemberton.
Not every borrower will qualify for the Countrywide plan, but it is estimated that some 125,000 in California will.
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