Home loan redo grows with new Obama plan
By Thomas Olson
Published: Tuesday, October 25, 2011
Thousands of homeowners nationwide who are "underwater" on their mortgages may get help from an expanded federal program that the Obama administration announced Monday and that mortgage and housing groups have widely endorsed.
The effort is the latest to tackle broader problems weighing down the sluggish housing sector, which independent economists say is holding back economic growth.
The program enhancements allow homeowners who owe more than 25 percent more on their mortgages than their home is worth to refinance. Previously, the program excluded those more than 25 percent underwater because their home values had fallen.
"If you meet certain requirements, you will have the chance to refinance at lower rates, which could save you hundreds of dollars a month, and thousands of dollars a year in mortgage payments," President Barack Obama said in Las Vegas as he announced the changes being made to the Home Affordable Refinance Program, started two years ago to great fanfare. "Second, there will be lower closing costs, and certain refinancing fees will be eliminated -- fees that can sometimes cancel out the benefit of refinancing altogether."
"Yes we can" is out. President Obama's new slogan: "We can't wait."
Since the Senate blocked consideration last week of Obama's jobs proposal, the administration has moved to Plan B: bypass Congress and enact change via executive-branch measures.
In the "We can't wait" initiative, the administration is "taking and highlighting a series of executive actions to show that we're doing everything we can do to get the economy moving to help middle-class families and create jobs," said Dan Pfeiffer, White House communications director.
At the same time, Mr. Pfeiffer said, the administration will continue to pressure congressional Republicans to pass the president's $447 billion jobs bill, the American Jobs Act, either in its entirety or piece by piece.
The refinancing program is being extended until the end of 2013. It was originally scheduled to end in June 2012.
A homeowner with a $300,000 mortgage would save about $6,000 a year by refinancing the mortgage and lowering the interest rate by 2 percentage points. The average interest rate on a 30-year, fixed-rate mortgage is 4.11 percent, the lowest rate in 60 years, according to Freddie Mac.
"Usually you can't refinance when your mortgage is underwater," said Paul Leonard, spokesman for the Housing Policy Council, Washington.
"This should help hundreds of thousands of homeowners," said Leonard, whose trade group represents lenders and loan servicers. "You'll probably start to see some refinancing from this in December."
Refinancing mortgages at lower rates will "give some households more money to spend on other things and enable others to at least pay their mortgages off at a faster rate," said Bob Nielsen, chairman of the National Association of Home Builders. The changes should provide "a badly needed boost to consumer confidence."
The program known as HARP started in early 2009. To date, it has helped nearly 894,000 borrowers refinance their mortgages.
"While HARP won't live up to the initial expectations of 4 (million) to 5 million in refinancings, the program will ultimately provide a meaningful boost to the broader economy as financially stressed households will benefit from much lower mortgage payments," said Mark Zandi, chief economist for forecaster Moody's Analytics.
HARP was supposed to be the simpler part of a two-pronged plan to tackle the nation's housing crisis when it started two years ago. It aimed to help borrowers whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac to refinance and take advantage of historically low lending rates. The other prong sought to provide incentives for modification of delinquent loans, but it too has fallen far short of expectations.
Fannie and Freddie together own or guarantee about half of the nation's $10 trillion in outstanding mortgages. They also serve as a secondary market where lenders sell the home loans they make, enabling the lenders to lend more.
HARP never quite took off, helping well below the 4 million-plus originally targeted. Among the reasons for its lukewarm performance are numerous fees, high closing costs, bureaucratic hassles with appraisals in a declining market and liability issues tied to the former loans. All are addressed in the revised HARP, which will operate until the end of 2013.
The biggest problem, however, was the continued decline in home prices. That left more and more borrowers underwater, the term for owning a home worth less than the value of its mortgage. Anywhere from one-quarter to one-third of all homeowners are now believed to be underwater.
Mortgages now eligible in the expanded program must have been sold to either Fannie Mae or Freddie Mac by May 31, 2009. The two government-sponsored corporations guarantee about half of the nation's home mortgages.
To be eligible, homeowners must be current on their mortgage, with no late payments in the past six months and no more than one late payment in the past 12 months.
The changes waive requirements that homeowners pay for fresh appraisals or pay fees if their credit scores are below a certain threshold.
"A number of our customers have been unable to refinance their loans -- from about 6 percent to 4 percent -- because of the requirement of a new appraisal on their homes and from the many fees," said Terrance Rice, president of Patriot Lending Services Inc., Carnegie. "That made it very expensive for them to obtain a lower interest rate."
"This move by the Obama administration to relax the requirements will enable us to help credit-worthy clients refinance their loans at a lower rate," Rice said.
According to Columbia Business School research, 1 million to 2 million Pennsylvania homeowners could benefit from refinancing their home mortgages. But neither that research nor other industry experts could estimate how many Pennsylvania homeowners would be eligible to refinance under the changes to HARP.
The expansion especially will benefit owners of homes in California, Florida and Nevada, Leonard said. Those are markets where housing prices ballooned then burst a couple of years ago.
"These changes are not going to be a silver bullet to solve all the issues facing our housing market and borrowers who owe more on their mortgages than their homes are worth," said David Stevens, president of the Mortgage Bankers Association.
"But they will offer lenders another tool to help borrowers and hopefully help bring some stability to housing markets, particularly those most impacted by home value declines," he said.
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