Subprime mortgages are high cost loans targeted to those with weak credit histories.  According to the Center for Responsible Lending, there are 7.2 million subprime loans outstanding totalling $1.3 trillion (a 300% increase since just 2003). 

A vast majority of subprime loans made since 2003 are Adjustable Rate Mortgages (ARMs) with "low" teaser rates that reset to higher rates in 2-3 years.  Mortgage payments often increase by 30-50% or more as a result. 

28% of all loans originated in 2006 were subprime as compared to just 8% in 2003.  14% of all loans outstanding are subprime and at least 20% of subprime loans made in recent years are expected to end in foreclosure.

Last Thursday The White House announced a voluntary industry plan that hopes to help some subprime loan holders who face foreclosure due to rate resets.  The plan allows teaser rates to be frozen for another 5 years before resetting.  But to get this special treatment:

1. Your initial teaser rate must reset in 36 months or less.

2. Your loan must have originated between 1/1/05 and 7/31/07.

3. Your loan must reset between 1/1/08 and 7/31/10.

4. You must not be behind in payments until your rate has reset.

5. Your rate must have reset (at which point it is "o.k." to become delinquent).

6. Your lender must have sold your loan to an investor rather than hold the loan on its own books (boy, I can see this one confusing a lot of people).

7. You must have a FICO score of 660 or less.

8. Your FICO score must not have risen 10% or more since getting the loan.

9. Your payments must go up at least 10% upon rate reset.

10. You can't have more than 3% equity in your home.

11. The home must be your primary residence.

So basically, if you can show you can afford the higher rate, if you can't afford the initial teaser rate or if your rate already reset prior to 1/1/08, it won't help you.

Many believe this plan will only help a small fraction of subprime loan holders.  Some think it just prolongs the issue...pushes it out another 5 years.  But most agree that it is a step in the right direction. 

The Hope Now Alliance at 888.995.HOPE can provide foreclosure counseling and more information about the plan.  Also check the Homeownership Preservation Foundation website for more information.