While many Americans could benefit from the record low mortgage rates available today, most of those who would stand to benefit from them can’t qualify for them. While credit standards are much tighter today than they were just a few years ago, most homeowners can’t qualify for a lower rate simply because they owe more than their home is worth. It is estimated that around 11 million US homeowners are currently ‘underwater’ on their mortgages.
The Obama administration recently announced a new plan designed to help these underwater mortgages be refinanced. Administration sources estimate that the new plan would help at least 1 million Americans refinance to lower rates. However, such government plans in the recent past have been failures. Will things be different this time?
First of all, the details of the plan and how to qualify for it are still a bit sketchy. This is probably due to it being more of a re-election campaign ploy at this point, especially considering it was unveiled at a glitzy Hollywood campaign fundraiser held in the ultra-luxury Bellagio hotel. But, here are details I’ve been able to glean so far.
First of all, Obama’s new mortgage relief plan involves a regulatory change in the current mortgage assistance plan ran by the Federal Housing Finance Agency. The plan calls for the FHFA to remove the regulation that prevented Fannie Mae and Freddie Mac backed mortgages from being refinanced when the value of the home exceeded 125% of a home’s current appraised value. This is an extension of less-than-effective Home Affordable Refinance Program (HARP).
The second part of the proposal is to extend the refinancing program through December 2013. The program was previously scheduled to end in June 2012. This part of the plan seems to be intended to allow the program to give homeowners additional time to qualify and to extend it’s effects through the 2012 election rather than having them end just months before.
The last part is that the mortgage holder has to be current on their mortgage for at least 6 months. For many people who’ve suffered job loss and other financial troubles due to the recessionary economy this may not be the case and it makes them not eligible for the program.
However, there is an even bigger problem with the plan. Mortgage lenders have no legal obligation or significant financial incentive to refinance the potentially troubled mortgages they currently have on their books. This has been one of the major problems with HARP and will remain so even with these changes.
There are many sad stories involving people who’ve tried to get refinancing on their home loans through the Home Affordable Refinance Program and still had their home foreclosed on. Banks have found it easy to string people along while dealing with their big backlog of foreclosures, extracting what payments they could by using refinancing promises while pursuing foreclosure at the same time. We can expect this trend to continue under HARP even with this expansion.
So, to recap, the plan, which is basically an expansion of the current Home Affordable Refinance Program, does offer homeowners with underwater mortgages an opportunity to refinance at lower rates, provided that they can get their lender to go for the deal. Poor credit ratings after tough times will prevent some people from pursing loans from other lenders but should one have good credit they will be able to shop around for the best mortgage refinancing deal.
It is likely that there will be mortgage brokers who will cater their business operations directly to this refinancing plan. Use caution in pursuing these deals and make sure that you aren’t being shown something that’s “too good to be true”.