The Obama Administration estimates that its mortgage refinance program will help as many as 1 million homeowners across the nation avoid foreclosure.
The terms of the Home Affordable Refinance Program (HARP) have eased thus allowing mortgage finance giants, Fannie Mae and Freddie Mac, to help borrowers owing over 125 percent of the value of their homes. Previous, borrowers owing more than 125 percent were shut out of this program.
Other program terms are now relaxed as well. Background checks will now only require proof of timely mortgage payments during the past six months. Furthermore, to encourage borrowers to pay down their loans more quickly, Fannie and Freddie will eliminate certain fees for borrowers choosing shorter-term loans.
Fannie and Freddie’s regulator, the Federal Housing Finance Agency, has made a critical change in the program. They removed liability for lenders who participate in the program from having to buy back loans for underwriting errors.
“Of all the barriers, this may be the most significant,” said Gene Sperling, director of the White House National Economic Council, as quoted in a Reuters article.
These borrowers will be able to refinance into today’s low interest rates of around 4 percent, translating into lower monthly payments, and hopefully more spending cash.
There are currently 11 million U.S. homeowners who are underwater on their mortgages, and only roughly 1 million would qualify under the new terms to refinance with HARP. With the program’s lackluster history of helping borrowers (when the program was announced in early 2009, the government promised it could help as many as 5 million people, yet it has only served 895,000 to date) that number could be significantly lower.
President Obama is optimistic that this revamped version of HARP will help the economy.
“These are important steps that will help more homeowners refinance at lower rates, save consumers money and help get folks spending again,” the President said in remarks to the press in Las Vegas.
The Obama Administration believes that participating families could save as much as $2,500 a month.
That optimism is tempered by comments like those from Congressman Spencer Bachus who said in a statement,
“It has the added negative effect of transferring consequences, liabilities, and risks from the financial institutions which entered into loans that are now underwater ultimately to taxpayers.”
Yet, the FHFA’s acting director, Edward DeMarco, who has been extremely cautious in protecting against greater taxpayer losses through Fannie and Freddie believes,
“This is an appropriate balancing of risk that’s being borne by Fannie and Freddie, and hence the American taxpayer. This will make HARP more available.”