Arnold Schwarzenegger wants to avoid an 'American nightmare'. Photo / Reuters
The American mortgage industry has agreed to offer special "pay-what-you-can" deals to struggling borrowers, to avoid triggering a wave of repossessions that could precipitate an even more serious housing market crisis.
Four major players have signed up to a state-wide plan in California, one of the areas of
the country hardest hit by sub-prime mortgage problems. It allows customers to continue paying low interest rates, even after the mortgage should be a higher, standard rate.
The deal was heralded by California Governor Arnold Schwarzenegger as a way of preventing the American dream of homeownership from becoming "an American nightmare".
All borrowers whose introductory rates are set to expire will be kept on their existing monthly payments if a screen of their financial details suggests they would default on the higher bills. About 500,000 Californians have taken out home loans that will rest over the next two years.
Brokers sold the loans - often without requiring background credit checks - in the expectation borrowers would be able to refinance before a higher rate kicked in. But refinancing is difficult now house prices are in decline. California has been hardest hit as it contains seven of the 16 areas with the highest numbers of foreclosures.
- Independent
