The buzz in housing economics this week is all about Obama’s revamped home-loan refinancing program and the hope that it will help hundreds of thousands of underwater homeowners. The new program makes significant changes to the original HARP program – viewed as a total failure by most critics because it was supposed to help “millions” of borrowers, but only helped 894,000 to date.
HARP stands for the Home Affordable Refinance Program. It was rolled out in 2009 to help borrowers who owed more on their homes than their current value, enabling them to refinance and take advantage of lower interest rates, which would lower their housing costs and ease their financial burden.
First, let’s look at the changes:
• Some fees will be reduced or eliminated
• No more 125% loan-to-value ratio cap
• Streamlines refinancing process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as they are current on their mortgage payments
• Encourages shorting the mortgage term
• Program now extended to December 31, 2013
What hasn’t changed:
• The program is only open to borrowers whose mortgages are owned by Fannie Mae or Freddie Mac.
• Borrowers must be current on their mortgage payments to be eligible. (So this program really is not for homeowners facing foreclosure, but rather aims to stop people from walking away from their underwater mortgages.)
Officials estimate that changes to the program will save the average eligible family about $2,500 every year – the equivalent of a substantial tax cut. They anticipate the number of people enrolled will double as a result of the revamp.
A lot of folks have criticized the administration’s refinance efforts through HARP because the number of borrowers it has helped pales in comparison to those in need. Five million homes have been lost to foreclosure and another 3.5 million foreclosures are anticipated over the next two years, according to Moody’s analyst Mark Zandi. And analysts peg the number of homeowners who owe more on their mortgages than the current market value at 15 million.
The reality, though, is that there’s only so much the government can do to help the underwater situation without completely devaluing the mortgage securities market. A mortgage is a contract by which a borrower agrees to pay under specific terms. The government can’t just rewrite all these contracts. This is why you see efforts that are met with little fanfare. But we have to remember that one program isn’t going to completely fix all of housing’s problems.
Will these changes make a difference? I say every home saved from foreclosure – whether it’s an owner walking away or an owner who can’t pay his mortgage anymore – will make a small difference in some way. That’s one less foreclosure on the books and one more family that stays in their home, and there’s something to be said for that.
For more information about how to enroll in HARP, visit MakingHomeAffordable.gov. (Note: This page still displays the old requirements and details, not the latest changes.)