Market Overview

Obama to Unveil New Rules to Help Underwater Homeowners

President Barack Obama will announce Monday afternoon new rules for the various Home Affordable Refinance Program, designed to make it easier for homeowners to refinance to lower rates, regardless of the decline in value of the asset.

The rules changes are the first in a series of moves designed to help the economy that do not require Congressional approval. Since the executive branch writes the regulations around legislative guidelines baked into the bills actually passed by Congress, there are some areas where the President can act without requiring the assistance of the legislative branch.

Today's announcement marks the culmination of negotiations between the White House and the Federal Housing Finance Agency — the folks who regulate Freddie Mac and Fannie Mae. The new regulations will make it easier for borrowers to refinance their homes, even if the value of their home asset has dropped to below that they owe on their mortgages.

The program, Home Affordable Refinance Program, is only two years old, and was borne out of the housing crisis that kicked off the latest recession. The program was designed to help borrowers who are current on their mortgages (making mortgage payments on time) but who have not been able to refinance to lower rates as their home values have dropped precipitously.

According to the HARP website (link to program here), "If you are current on your mortgage and have been unable to obtain a traditional refinance because the value of your home has declined, you may be eligible to refinance through HARP. HARP is designed to help you refinance into a new affordable, more stable mortgage. The HARP loan is a new loan and will require a loan application and underwriting process. Loan refinance fees will apply."

Sounds nice, right? The ability to take on a lower interest rate will lower payments for tens of thousands of eligible homeowners, putting more money back into the economy.

Currently, the eligibility guidelines limit the homeowners to home mortgages that are up to 125% of the value of the home. The limitations made it incredibly difficult for borrowers who truly needed the program — those in states where the median home price dropped significantly — from gaining access to the new loans.

As a result, few people have signed up for the program. The new rules will allow for a larger write-down of the loan, and will include many more of the 11 million or so homeowners who are making payments but are underwater in terms of value. They're stuck with 6 and 7 percent interest rates, unable to refinance down to the 4 and 5 percent rates that today's market place offers. The difference in payment, combined with the incentive to simply walk away from a drowning asset, makes it imperative that some kind of relief program be offered.

Otherwise, homeowners will face perverse incentives to walk away from their home, increasing the number of foreclosures and further driving down the median price of homes. This, of course, exacerbates the problem, as lower prices mean more underwater mortgages which mean more folks walking away and allowing banks to foreclose. This program is an attempt to stop that downward spiral.

The current criteria for the refinance program are as follows:
You may be eligible to apply if you meet all of the following:

  • You have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac.
  • You do not have an FHA, VA or USDA loan.
  • You are current on your mortgage payments and have not been more than 30 days late making a payment over the last year.
  • Have a first mortgage not exceeding 125 percent of the current market value of your home. (this is one rule changing under the new plan)
  • The refinance will improve the long-term affordability or stability of your mortgage.
  • You have the ability to make the new payments.

*Eligibility criteria are for guidance only. Contact your mortgage servicer to see if you qualify for HARP.

The specific changes will not be published until mid-November, which means that lenders could start refinancing under the new rules around December 1 of this year. Mortgages that exceed 125 percent will be eligible for refinancing sometime in early 2012.

Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as December 1, the newspaper reported, citing federal officials. Loans that exceed the current limit of 125 percent of the property's value won't be able to participate until early next year, the report said.

These might be the only things that get done between now and the 2012 elections. Republicans, knowing that a bad economy would weaken the odds that Obama will win re-election, refuse to do anything positive for the economy. Yes, the Republicans are willing to let you and your friends suffer, as well as let the entire economy collapse, if it means that they, and not Obama, can win the 2012 elections.

When banks went underwater in 2008, Republicans were more than glad to write a check and bail their buddies out. But when it came time to bail out taxpayers who were in the same situation, they walked away from the table. Now that such a program might work and benefit the economy, they want nothing to do with it. Why, the Republicans reason, would we use the power of government to help people AND help Obama get elected, when we could do nothing and reap the benefits?

It's disgusting politics by a disgusting political party that deserves to lose ITS home base, as conservatives with a heart and economists with a brain foreclose on the GOP, the Party of No.

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