More underwater homeowners may be able to refinance

Federal officials are proposing the expansion of a program that allows people who owe up to 125% of their home's value to refinance at today's lower rates. Would it make a difference?

By Teresa at MSN Real Estate Sep 13, 2011 2:33PM

House in stormy water (© Steven Puetzer/Getty Images)President Barack Obama's speech last week barely mentioned the housing market. But he did allude to a proposal that has been floating around for a few weeks: allowing more people who are underwater on their mortgages to refinance into government-backed loans.

According to figures released today by CoreLogic, 22.5% of homeowners with mortgages owed more than their home was worth at the end of the second quarter, only slightly fewer than the 22.7% at the end of the first quarter. If you add in those with less than 5% of equity, the reality is that is that 27.5% of homeowners with mortgages have little or no equity.

 

The president's Home Affordable Refinance Program (HARP) allows homeowners who owe up to 125% of their home's value to refinance. But that program has helped fewer people than were expected when it was announced in March 2009. A total of 838,000 homeowners have received refinancing through that program through June, The New York Times reported, far fewer than the 5 million predicted

 

One of the hurdles is that borrowers still have to have enough income to qualify, and many families make less than they did when they took out their mortgage. Plus, the savings have to be more than the cost of refinancing. (You can see the states with the highest and lowest closing costs here.)

 

In hard-hit areas, many underwater borrowers are too far underwater to participate.

 

The president did not provide any specifics in his speech of how the program might be expanded or which "responsible homeowners," as he put it, would be eligible.


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One proposal under consideration is to allow homeowners who are more than 25% underwater to participate.

 

CoreLogic reported that almost 75% of underwater homeowners are paying more than 5.1% interest on their loans, and more than 40% of those who are more than 25% underwater are paying more than 6%. The average rate for a 30-year fixed-rate mortgage last week was at a record low 4.12%.

The Congressional Budget Office has calculated that Fannie Mae and Freddie Mac could refinance an additional 2.9 million loans without any significant increase in liability to taxpayers, the NYT reported. That would help avert 111,000 foreclosures.

The administration walks a delicate tightrope in coming up with a program that aids enough homeowners to make a difference but doesn't anger taxpayers who don't get the help. It also has to deal with the impact of any losses to the investors in the loans.

 

While changing the rules of the program could benefit additional homeowners, it is unlikely to have much impact on the economy or the housing market as a whole. The CBO analysts wrote:

With respect to the housing market, the overall impact of the program is also small; the 111,000 homeowners saved from foreclosure by virtue of lower monthly mortgage payments will have a minor impact on the path of future home prices. Because this program is directed toward current homeowners, it would do little to alleviate the tighter underwriting standards and increased credit pricing for purchase loans. In addition, it would not create much demand for homes, because all of its participants would already have at least one property.

What do you think? Should the government seek to help more families refinance and, if so, under circumstances?

 
11Comments
Dec 7, 2011 11:42AM
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I have had the same problem - I tried to refinance within the past year to get a lower rate, but found out I can't refi unless I pay $18,000 to clear the loss.  I don't have a Fannie or Freddie loan.  I'm paying 5.5% interest making my payment - close to $800 a month because of pmi and insurance included (and it's a basic home-3/2). 

If the "Occupy" group were a little more organized, maybe we could see some improvements with government spending, greedy politicians and apathy for the middle class.  "Occupy" has no message, they are not 'standing' for a movement, and is just causing a scene.

Dec 7, 2011 9:37AM
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Our interest rate is 10.125 because it is an unconventional loan that we have had since 1994. We applied for refinancing in 2005 but the broker lied for 3 months straight. When I researched our paperwork, I found the mortgage company. They denied the loan because the broker never got back to them. We were applying for a 30 year loan and the appraisal for the useful life was 28 years. I remember his phone call and told him to change the life of the loan to 25, 20 or 15  respectively. He never did it probably because it was more important for him to get those 500K loans rather than our 120K. Had he made that simple call, we would be paying $500.00 less a month. Now Greentree is servicing it and they don't want to disappoint their investors. They basically don't have a long term solution they are willing to provide. And we've been through the hardships- loss of both jobs, business down the toilet, major theft and holding two mortgages on two different residences to mention a few. We moved back to our primary residence after the business was sold. This area is a depressed area and I recently got a temporary job at our old residence so I can finish fixing it up. Units aren't selling there and everyone moving out are renting their units. We plan to do the same.

Many people who mention their woes in this forum have every right to complain about the "insensitive blood sucking mortgage peoplet; Get this-B of A sent us a packet for loan modification and a coalition group with several of the mortgage people met with people who were interested in the program. Based on a letter I received yesterday, it looks like we must qualify for some program and it actually might be successful. I believe that the people who are having troubles should check to see if they have a non profit group that are walking people through the modification process in their area. For reference, we live in the Pacific Northwest and our condo is in Murray, UT. Yes, we are going through great lengths to keep our life intact- Rainier, OR and Murray, UT are slightly under 1,000 miles apart.

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Yes i do think that the Govt. should allow more homeowners to refinance, i have whats considered a 'underwater' mortgage witha financial company but they are not fannie mae and freddie mac,therfore i cannot get them to allow me to refinance,i have a 5.40% rate with people now getting 4.3% that would be a $200 per month saving for me,i am a Viet Nam disabled Vet with limited income..HELP HELP HELP!!!!
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a lot of people really needed Customer service and people PAYING attention  some forbarances and STOP PREDETORY   intrest rate 's on anything    The Banks have rouge employess   and incompetance   YOU CAN NOT GET ANY REVISIONS    worried about TERRORIST  overpaid    overpaid
Oct 7, 2011 9:54PM
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I am paying 6.98% interest and have been in our home 10 years.  This past February I had to make a mortgage payment thru my banks bill pay system instead of Wells Fargo's website.  A month later I started getting letters claiming I was a month behind on my mortgage. Then 2 months and at one point they claimed I was 3 months behind.  Meanwhile, I made every payment up until I received a letter at the end of August telling me I was being foreclosed on and to contact the bank's attorney.  My financial institution was working with me to try an find out  what happened to the payment they claimed was missing but wasn't.  Now I am facing a foreclosure sale at the beginning of November.  The lawyer claims I have to pay $2600 to  stop the foreclosure and did I mention that Wells Fargo is sending me back $5700  that they claim was paid after the foreclosure started.  Because of their crappy bookkeeping, I am getting the shaft and the bank and their lawyers aare laughing all the way to the bank.  SO despite making all my payments, I am getting screwed.  I agree the American Dream is a pipe dream and the pipe sure isn't filled with anything good.
Oct 7, 2011 7:49PM
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I am $100,000 under water on my home, but don't want to give it up. I have not been late on my mortgage. When I bought my house, it was comfortable for us, but now I have been unemployed 3 times in the past 5 years, and have lost 50% of my income. I'm thankful to have a job, but my house payment takes up a huge percentage of our monthly income. We are not eligible for any refi programs because our loan is not owned by Fannie Mae, Freddie Mac or FHA/VA.  We pay 6.5% interest. If I could lower my payments it would be a blessing AND WE WOULD HAVE MORE MONEY TO PLUG BACK INTO THE ECONOMY and save for retirement.
Oct 7, 2011 4:45PM
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i pay 6.45% but my credit got crashed with the markets in 2008 BOA won`t refinance and refused 5 applications making home affordable blaming me for not providing documents or no one answered phone when they called. (which was turned off to save money) saying I was approved twice and could apply again if I wish. you have to know someone to get these loans they are rigged unfair. keep up the protests
Oct 7, 2011 2:22PM
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Like many states AZ has been hit hard.  My house is now valued at less then half of what I paid.  When I bought my home I was single and I put the 20% down and took a 30 year fixed rate mortgage at 6.5%.  I was so proud of myself to be able to buy a house and follow conventional rules for buying a home.  Here it is 6 years later and I am 30 with a wife, 1 child and 1 on the way.  a simple rate and term refinance would be great and that extra few hundred bucks would really help every month.  Maybe then my wife could quit her low paying job and stay at home opening up a new job for someone else.  I just don't get it.  I am ok with paying back all that I borrowed and we do want to stay in our home for now.  So why even appraise it, just refinance me to the lower rate and set me up for another 30 years of payments. SIMPLE. the alternative.... hmmm  well this is surely one investment I would love to sell and cut my losses.  with another mouth to feed and my medical plan going threw the roof bills are going to be tight and I am starting to think my mortgage will become a lower priority.   maybe then someone will decide it is ok to help me.....  I doubt it though.     

Oct 7, 2011 8:22AM
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I know it will be tough to make the solution equitable, but those supposed "responsible" homeowners do not need the help. Help the folks who are fighting to keep the house and family together by working whatever comes their way. Don't penalize those that have had hardships like job loss, medical emergencies, or any other life changing event. I am not saying to wipe out my 100% underwater balance, but all homeowners should be included in the solution. I have had 2 modifications and this last one is a good solution for the bank and me, but the underwater balance was not addressed. I would simply like to defer the underwater part so the bank won't be out that amount and I would have a definite goal to shoot for at the end of the loan. Either pay up, borrow, or give it back.
Oct 7, 2011 7:43AM
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We are one of those homeowners who tried to re-finance our underwater mortgage with this program when it first came out last year.  The bank was reluctant to the point of dragging their feet every step of the way.  We have automatic deduction from our account for the house payments, so we have NEVER been late in the 7 years of the mortgage.  My husband is disabled and my credit score was 720+, but that still wasn't good enough for them.  We used the bank's on-line appraisal estimator and documented that the house was valued well over the amount needed to qualify for the program.  When I kept pursuing the issue, the bank finally sent out an appraiser who - magically - appraised the house at $4K under their on-line estimator, so the bank sent me a nice letter stating that we could participate if I had the $4K to add to the re-fi.  When I asked the bank why there was such a discrepancy between their on-line estimator and the appraiser, they sent me a nice certified letter in the mail stating they were closing the re-fi file.

As far as I'm concerned, this bank - one of the large ones who got government bail-out funds - is one of the main reasons this program is not a success.  The bank received a bail-out, but when I ask for help, I'm told, "Oh sorry. You don't qualify." And then they FIND a reason to make sure we don't qualify.  We are stuck between a rock and a hard place.  Home values continue to plummet.  Bank and Wall Street executives keep getting fatter wallets.  And in the meantime, anyone who works hard to do the right thing, pay their bills on time, etc. gets the shaft.

And politicians turn a blind eye to the whole thing.  American Dream my behind! 

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