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?
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.
Post continues below
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?
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.
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.
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.
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!