Need To Qualify For The Mortgage Freeze Program?

Want to qualify for the new government mortgage freeze program? You can apply online here. But don't worry about your FICO score. In fact, you may need to skip some payments in order to qualify:

To qualify for the fast-track program, borrowers must have a FICO score of less than 660 and it can't have increased by more than 10% since they took out their original subprime mortgage.

Because income isn't checked, some experts worry that borrowers who might otherwise be able to afford higher payments will try to lower their FICO score to qualify for a rate freeze.

"The message here is to get your FICO score down," Mark Adelson, a structured finance expert, said. "Don't pay some bills, but keep up with mortgage payments."

"They're skipping over the part where they actually evaluate whether people can really afford to pay after resets," he added.

Other experts agree.

"There's certainly a lot of potential for gaming this system," said Andy Chow, portfolio manager at SCM Advisors LLC, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets.

"The five-year freeze on rates is the most troubling part of the proposal," said Joseph Mason, associate professor of finance at Drexel University. "That will create great uncertainty, hurting investors and mortgage-backed security valuations in the secondary market."

A lot of home loans are packaged up into mortgage-backed securities and sold to institutional investors around the world. The value of these bonds is based on future cash flows from interest payments on the underlying loans.

For investors in subprime home loans that may be frozen under the new plan, there's a delicate balance to consider. If resets are allowed to happen, they will get higher cash flows, but there could be more defaults. If resets are frozen, cash flows will fall, but fewer defaults may occur.