Mortgage refi plan targets hard-hit borrowers

President Obama is planning to unveil a new mortgage refinancing plan that would allow those homeowners who have become victim of steep price declines on their homes to be able to get cheaper loans. This is specifically for those homeowners who's mortgages are more than the value of their home.

Oct. 24, 2011, 11:54 a.m. EDT
By Steve Goldstein

WASHINGTON (MarketWatch) — President Barack Obama on Monday is due to unveil a changed mortgage refinance plan that would allow homeowners who have suffered steep price declines on their properties to get cheaper loans.

The Home Affordable Refinance Program, the only program specifically designed for owners whose mortgages are worth more than the value of their homes, is being changed so that more Fannie Mae- or Freddie Mac-guaranteed mortgages could be refinanced. Use external link to see if Fannie Mae has guaranteed your mortgage.

Use external link to see if Freddie Mac has guaranteed your mortgage.

With house prices nationally roughly a third below their peak, there are millions of borrowers who will potentially be eligible to refinance into mortgages near record lows — the 30-year carried an interest rate of 4.11% last week — rather than the mere 894,000 borrowers who have used the program so far.

The new plan does have its limitations: it will require homeowners to be current on their payments and it’s only for loans sold to Fannie or Freddie by May 31, 2009. And of course, not all loans are backed by the housing giants, though state attorneys-general are separately negotiating a settlement with the nation’s top lenders that may include an element of mortgage modification.

According to the Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, the program will lower fees, eliminate the current 125% loan-to-value ceiling, waive lender warranties and eliminate the need for property appraisals.

“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said FHFA Acting Director Edward J. DeMarco in a statement. DeMarco, a Bush appointee, had been seen as reluctant to embrace an expansion of mortgage modification efforts over concerns about increased costs to Fannie and Freddie.

By the end of 2013, the FHFA’s “best estimate” is that the number of refinances doubles from current level, though it cautioned “such forward-looking projections are inherently uncertain.”

White House officials say the refinancing could save owners about $2,500 each year.

Gene Sperling, the director of the National Economic Council, said the key element of the plan is the removal of reps and warranties. “Removing reps and warranties has the potential to unleash competition for housing refinance,” Sperling told reporters on a call.

The move could have a major impact on the U.S. economy if the plan works as designed: There are $550 billion worth of mortgages that could benefit from a removal of refinancing impediments, economists at Morgan Stanley estimate.

The industry embraced the initiative.

“Lenders are particularly gratified that the refinements will provide relief from some representations and warranties that lenders face when originating new loans,” said David Stevens, president and chief executive of the Mortgage Bankers Association. “These changes alone should encourage lenders to more actively participate in HARP.”

He cautioned that “it will take a bit of additional time” even after FHFA guidelines are introduced in November to implement them.

Obama is due to announce the program in Las Vegas, which according to data compiled by RealtyTrac has the highest number of foreclosures in the country. He had alluded to the effort when he rolled out his jobs bill in September.

Politically, the plan is the start of a once-a-week effort to show the Obama administration can get things done even when legislative efforts are blocked in Congress, according to the New York Times.

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