Mozilo on sub-prime freeze: “A good plan”

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Good morning. New developments this morning in talks on a plan to freeze interest rates for some sub-prime borrowers, and some old questions I’ll throw out there one more time. First the developments:

--From AP via CNBC.com: ‘Treasury Secretary Henry Paulson said he is confident there will soon be an agreement to help thousands of homeowners avoid mortgage defaults by temporarily freezing their interest rates.’

--More from AP: Countrywide Financial Chairman and CEO Angelo Mozilo praised the plan: ‘It’s a good plan,’ Mozilo told CNBC. ‘We’ve already done about 55,000 of these loans in terms of saving them from the reset. We’ll do 70,000 by the end of the year. And we expect to do another 40,000 to 50,000 next year depending on where rates go.’

Now the questions: I’ll leave aside, for the time being, the discussion of whether this is good policy, and to what extent it is a public relations effort.

--Will the assorted investors and bondholders who now own these mortgages agree to widespread modifications? Will some say ‘yes’ and others sue?
--Are refi loans eligible, or only purchase loans?
--What about the borrowers -- and there are many -- who have second mortgages or HELOCs?
--Will loans be evaluated and modified on a case-by-case basis, or modified in bulk? Paulson has said a case-by-case analysis won’t work fast enough. But if you don’t evaluate each loan, aren’t you inviting fraud and abuse -- for example, by speculators?
--How does a lender determine eligibility for a ‘freeze’ when it is well documented that the loan files are
filled with fraud, misrepresentation and other half-truths? (Fitch Ratings, in an analysis of a random sample of sub-prime loans, concluded last week: ‘... there was the appearance of fraud or misrepresentation in almost every file.’)

Example: One of the most common lies, according to Fitch: ‘Occupancy fraud’ -- the borrower stated he was going to live in the house, but never did. The ‘freeze’ program is open only to owner-occupiers but, as Fitch reports, the banks and lenders do not know which homes are owner occupied and which are owned by speculators.

Enough of my bloviations. Your thoughts? Insights? E-mail story tips to peter.viles@latimes.com.