Looks like the plan floated in late summer [Aug 25, 2011: White House Considering Plan for Country Wide Refinance of Government Backed Loans] is coming to fruition as we have news today that every government backed loan (as long as someone meets a few conditions) will now be eligible for refinancing, regardless of loan to value. Originally the HARP (Home Affordable Refinance Program) was limited to those not only with no equity in their home, but up to -5% equity. Then it was adjusted up to -25% equity. Now there will be no negative equity limitation. Apparently, President Obama can do this without Congressional approval.
As the story in August detailed, if everyone eligible participated this would be about a $85B stimulus to the economy.
- President Barack Obama on Monday is due to unveil a changed mortgage refinance plan that would allow homeowners who have suffered steep price declines on their properties to get cheaper loans.
- According to reports, the Home Affordable Refinance Program will be changed so that any Fannie Mae- or Freddie Mac-guaranteed mortgage could be refinanced.
- With house prices nationally roughly a third below their peak, there are some 20 million borrowers who will now be eligible to refinance into mortgages near record lows — the 30-year carried an interest rate of 4.11% last week — rather than the mere 894,000 borrowers who have used the program so far.
- The new plan will require homeowners to be current on their paymentsThe move could have a major impact on the U.S. economy if the plan works as designed: There are $550 billion worth of mortgages that could benefit from a removal of refinancing impediments, economists at Morgan Stanley estimate.
The WSJ Developments blogs answers some common questions on the changes:
- Initially, the program was limited to borrowers who owed between 80% and 105% the value of their homes. In mid 2009, the program was opened to borrowers who owed up to 125% the value of their homes.
- But a series of unforeseen “frictions” have led fewer borrowers to take up on the offer of lower rates. Fewer than 900,000 homeowners have refinanced under HARP over the past 2½ years, and just 72,000 of those borrowers have loan-to-value ratios between 105% and 125%.
How is HARP being expanded? Borrowers will soon be able to refinance no matter how far underwater they are. This should have a big impact in certain parts of Nevada, Arizona, and Florida where many borrowers owe more than 125% of the value of their homes. In Nevada, for example, two thirds of all loans backed by Fannie Mae are underwater, and half of all loans are above the 125% loan-to-value cut-off.
What other changes are being made to improve HARP? One of the most important changes addresses the risk that banks will have to “buy back” defaulted mortgages from Fannie and Freddie if the loans are discovered to run afoul of underwriting rules. This has prompted banks to scrutinize appraisals and require extensive documentation of borrowers’ incomes on loans for which they don’t already collect payments, even if Fannie and Freddie already guarantee those loans. As a result, some borrowers can only qualify for HARP by going to their current mortgage servicer, rather than shopping around for the best rate.
Under changes to be announced on Monday, banks will be largely shielded from the “buy back” risk on HARP mortgages, and they’ll only have to verify that borrowers meet a more tailored set of eligibility rules: that they’ve made their last six payments and have no more than one missed payment in the last year and that they have a job or another source of regular income.
How will this change help borrowers? This will streamline the refinance process, eliminating the need in many cases for borrowers to obtain appraisals or to provide extensive income documentation. Instead, borrowers will have to show that they’re current on their mortgage, that they have a job or another source of regular income, and that they meet the other eligibility criteria for HARP.