Troubled homeowners get a lifeline
By Les Christie October 24, 2011: 6:05 PM ET
NEW YORK (CNNMoney) -- In the latest attempt to address the ailing housing market, the
government on Monday announced changes to a federal program that will make it
easier for struggling homeowners to refinance to today's near-record low
rates.
Under the new program, homeowners who owe more on their homes than they are
worth will be able to refinance no matter how much they are underwater, as long
as they are current on their payments.
More than 1 million homeowners could get cheaper mortgages as a result,
officials estimated.
The revamped Home Affordable Refinance Program (HARP) will also streamline
the refinancing process, doing away with certain types of appraisals and
underwriting requirements, and reducing or eliminating fees that prevented
homeowners from refinancing in the past.
More than 890,000 homeowners have already refinanced under HARP, which is
available to borrowers with loans backed by Fannie Mae and Freddie Mac
originated before May 31, 2009.
But hundreds of thousands more could not qualify -- mainly because of the
previous 125% loan-to-value limit on the program or because banks would not take
on the risk.
"We know there are many homeowners who are eligible to refinance under HARP
and those are the borrowers we want to reach," said Edward DeMarco, acting
director for the Federal Housing Finance Agency (FHFA), which oversees Fannie
Mae and Freddie Mac.
Currently, about 11 million borrowers are underwater on their mortgages, with
about 4.7 million of those loans meeting or exceeding the 125% loan-to-value
limit, according to CoreLogic, a financial analytics company.
By the time HARP expires in 2013, the federal housing agency estimates, up to
1 million more borrowers may benefit from the new regulations.
Many of those borrowers will be from states like Florida, California, Nevada
and Arizona where home values have been hit the hardest. In metro areas like Las
Vegas, for example, prices have plunged nearly 60% from their early-2006 peak.
The new rules and other details have yet to be finalized, but FHFA said that
should all be worked out by Nov. 15. Banks may be able to start issuing
refinanced loans by Dec. 1.
Lifting the loan-to-value restrictions may still only help a limited number
of borrowers, according to Jaret Seiberg, an analyst for MF Global Inc.'s
Washington Research Group, which analyzes public policy for institutional
investors.
The problem: Mortgage holders still must be current on their payments for the
past six months -- with no more than one missed payment in the past 12 months
--and they also must be able to qualify for a new loan.
However, Seiberg believes, the changes should allow banks to refinance loans
without worrying that Fannie Mae (FNMA,
Fortune
500) and Freddie Mac (FMCC,
Fortune
500) will force them to repurchase the loans if the borrower
defaults.
In the past, banks have been reluctant to refinance loans because they didn't
want to take on that liability, explained Shaun Donovan, the secretary of the
U.S. Department of Housing and Urban Development. By doing away with that
liability, more lenders will compete to refinance the loans, which he believes
will make them more affordable for borrowers.
That should help remove one of the biggest barriers to refinancing through
HARP, said Gene Sperling, director of the National Economic
Council.
Under the newly-revamped program, Fannie and Freddie will also reduce the
fees they have charged in the past in order to enable borrowers to better afford
the new loans.
Among the fees that may be reduced or eliminated are those for loan level
price adjustments. Going forward, borrowers may not be penalized for
less-than-perfect credit scores, for example.
Fees will also be waived for some underwater borrowers who refinance into
20-year or other, shorter-term loans. By doing so, it could help homeowners get
above water faster.
A homeowner who has a $200,000 balance on a 30-year mortgage with a 6.5% rate
and a home value of $160,000, for example, currently makes payments of $1,264 a
month.
If they refinance into a 20-year fixed-rate loan at 4.25%, it will reduce
monthly payments to $1,238 and slash the balance to $160,000 in just
five-and-a-half years. If they refinance to a 30-year loan at 4.5%, however,
their monthly payments will be much lower, $1,038, but it will take 10 years to
reach $160,000.
"It's an opportunity for borrowers to improve their household balance sheets
by repaying their mortgages much quicker," said DeMarco. 
