This week, a housing regulator reported changes to a government refinancing program that may help a million homeowners from the estimated 11 million that are underwater in their mortgage. These homeowners owe more on their homes than their homes are actually worth.
The Federal Housing Finance Agency that oversees mortgage sources Freddie Mac and Fannie Mae stated they were easing the terms of the 2 year old Home Affordable Refinance Program that aids borrowers who have kept up with their mortgage payments but have not been able to refinance due to drops in home values.
In order to help these borrowers, FHFA stated it would lose the cap that stops any owners if their mortgage is more than 125% of the value of the property from participating in HARP. HARP is a program backed by Freddie Mac and Fannie Mae.
FHFA’s acting director, Edward DeMarco stated, “Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”
One lawmaker after talking with DeMarco in October stated that the expanded program could aid between 600,000 to one million borrowers, but went on to say that it is only a small fraction of the around 11 million homeowners that are underwater.
President Barack Obama is likely to endorse the initiative during a speech in Las Vegas. The president will use the trip to raise money for his re-election campaign as well.
The White House is not certain just how many homeowners the program can help, but Gene Sperling, White House economist states it is too early to tell how many homeowners would “benefit from the changes announced today or could be announced in the future.”
The New York Times stated the new initiative as a part of a program that the president would be announcing to help address the nation’s economy while Republicans are reluctant to pass his jobs plan.
This is the latest attempt of the White House to deal with a major factor that is slowing the economy – the housing market – and is also added to the political liabilities for Obama’s re-election bid, which is also jeopardized by high unemployment in the United States.
Previous federal programs to stop or slow down foreclosures have failed.
To encourage banks to get on board in the program, FHFA is remodeling it to protect lenders so they do not have to buy back HARP loans if underwriting problems are found later. Lenders will only need to verify that the borrowers have made six of the last mortgage payments. The new rules also eliminate the need for appraisals in the majority of cases.
FHFA stated that the government-controlled Fannie Mae and Freddie Mac would waive specific fees for borrowers that refinance into loans with a shorter term, like 15 years, intending to encourage homeowners to pay down the amount they owe in a shorter time period.
One of the Obama administrations in the hopes of helping with foreclosure efforts, HARP was announced in March 2009, which was thought, would help around 5 million borrowers. At this time, only around 894,000 borrowers have used the program to refinance their loans.
FHFA announced it would extend the program until Dec. 31, 2013. The program is limited to loans that were guaranteed prior to June of 2009 via Fannie Mae and Freddie Mac.
New York Fed president William Dudley during a speech at Fordham University’s Gabelli School of Business in New York stated, “Breaking this vicious cycle is one of the most pressing issues facing policy makers.”