Saying that it hopes to help several million more families save money while helping the economy, the Obama administration on Oct. 24 unveiled a multifaceted plan to encourage the refinancing of mortgages.
The initiative, which will be implemented during the next few months, is aimed at helping consumers who owe more on their mortgages than their house is worth. The Obama administration has maintained that by providing these homeowners–whose mortgages are underwater–with additional relief, it will allow them to spend money elsewhere and help jump-start the economy.
The changes to the Home Affordable Refinance Program include removing the current 125% loan-to-value ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac; waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie and Freddie; eliminating the need for new property appraisals in some refinancing transactions; and extending the end-date for the program from June 2012 to Dec. 31, 2013.
“This will provide a substantial benefit to the broader economy and to the housing market,” Secretary of Housing and Urban Development Secretary Shaun Donovan said in a conference call with reporters.
He said that regulatory changes are among the steps that the Obama administration can take without getting congressional approval. However, he urged lawmakers to pass the administration’s job creation measures as a means to help the economy and housing market even more.
Under the new rules, which are issued by the Federal Housing Finance Agency, the mortgages that are eligible to be refinanced must be owned or guaranteed by Fannie or Freddie and been sold to one of them before May 31, 2009; can’t have been refinanced under HARP except for Fannie loans under HARP from March-May 2009; the current loan-to-value- ratio must be greater than 80%; and the borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.
So far, HARP has helped almost 1 million homeowners, and the administration said it hopes that number will double as a result of the changes. There are approximately 10 million homeowners whose mortgages are underwater.
The Obama administration estimates that the refinancing could reduce the average borrower’s annual payments by $2,500.
State Employees Credit of North Carolina Credit Union President/CEO Jim Blaine said the changes will make a small dent in the problem “but not enough to make a significant impact.”