Arizona’s chief financial regulator may ask state lawmakers to cap how much lenders can hike the interest on adjustable rate mortgages.
Felecia Rotellini, superintendent of the state Department of Financial Resources, said she and Fred Karnas, director of the Arizona Department of Housing, have been meeting with some major banks to convince them to work with borrowers who are in trouble rather than simply foreclose on their homes.
Karnas said the problem for many are those adjustable mortgages.
The introductory interest rate they got when they bought their home is going away, being replaced by something that now puts payments out of the reach of the home-owners.
Rotellini said the banks “have all assured us that they’re working with their borrowers to do work-outs and have flexibility in interest rates, in the terms that they are willing to negotiate.”
But Rotellini, who acknowledged many of the loans are in the hands of national companies, said that may not be enough. She said her agency is investigating legislation which would freeze the interest on those adjustable mortgages at current rates.
“I don’t think you could do anything without changing the law,” she said.
Getting the measure through the Legislature might be the least of Rotellini’s problems: The state constitution has a specific provision barring enactment of any “law impairing the obligations of a contract.” And
the mortgage deals signed by borrowers are contracts.
The efforts come as California Gov. Arnold Schwarzenegger just this week negotiated a deal with four major lenders who deal largely in “subprime” mortgages to maintain the lower introductory interest for at least some of their customers.