FHFA to Expand Mortgage Refinancing Program
With the housing market still struggling, the Obama Administration and the Federal Housing Finance Agency have decided to alter the guidelines of a refinancing program intended to help homeowners stuck in upside-down mortgages.
The Home Affordable Refinance Program was created to help homeowners that are still up to date with their payments, but are stuck in upside-down mortgage loans backed by Fannie Mae or Freddie Mac. The program has yielded unspectacular results; helping less than a million homeowners while over 11 million are still struggling to make their payments.
In order to help more Americans, and hopefully spark the economy, the FHFA and the Obama Administration have decided to remove the stipulation that excluded mortgages over 125% of the home's current value. While allowing these incredibly high-risk loans to be reworked exposes Fannie, Freddie and taxpayers to increased risk, it is expected to help an additional 1 million homeowners secure lower interest rates.
The FHFA plans to focus on loans originated between 2004 and 2008, when the mortgage rate was above 5%. Today, the housing lull has caused historic low interest rates at around 4%. Restructuring a mortgage at this new rate could save these homeowners on average $2,500 a year. The Obama Administration hopes that some of this extra cash will trickle into the economy.
In order to attract lenders, the FHFA agreed to not force lenders to buy back loans if underwriting issues are found later on. They will also eliminate certain fees for homeowners who agree to refinance into shorter-term loans.
Many economists believe that the housing market lull is what is truly impeding economic recovery in the United States. Whether or not, and how to, properly stimulate the housing market has been a crucial issue for the Obama Administration during the recovery efforts.
Some experts believe that tampering with the market is only slowing down the process of housing recovery, which they believe has to take place organically.
Some officials at the Federal Reserve have suggested that the bank should help drive down the cost of borrowing by buying mortgage debt, while a former U.S. Treasury Secretary has opined that selling off thousands of foreclosures to investors to turn into rentals would help remove some of the glut.
When the HARP was announced in March 2009, it was expected to help around 5 million owners and expire in June of 2010. The program has been extended several times and is currently slated toend on December 31st, 2013. So far, less than one million homeowners have had their mortgages refinanced through the HARP.
By: Javi Calderon
