U.S. eases rule for mortgage program

More refinancing expected, but it won’t cure housing woes, officials say

President Barack Obama speaks in Las Vegas on Monday.
President Barack Obama speaks in Las Vegas on Monday.

— The Obama administration on Monday restarted a program to help some Americans refinance their homes, making it easier for those who owe more than their house is worth to get a new loan.

The new effort, however, stops short of tackling broader problems weighing down the housing sector, officials said.

“If you meet certain requirements, you will have the chance to refinance at lower rates, which could save you hundreds of dollars a month and thousands of dollars a year in mortgage payments,” President Barack Obama said in Las Vegas as he unveiled the changes coming to the Home Affordable Refinance Program. “Second, there will be lower closing costs, and certain refinancing fees will be eliminated — fees that can sometimes cancel out the benefit of refinancing altogether.”

Independent economists say the program has underwhelmed, but they generally supported the president’s retooled plan because it will give participating homeowners more cash to spend in a sluggish economy.

“While HARP won’t live up to the initial expectations of 4 [million] to 5 million in refinancings, the program will ultimately provide a meaningful boost to the broader economy as financially stressed households will benefit from much lower mortgage payments,” said Mark Zandi, chief economist for forecaster Moody’s Analytics.

To qualify for the new program, borrowers must be making on-time payments on loans owned or guaranteed by Fannie Mae, the Federal National Mortgage Association, or Freddie Mac, the Federal Home Loan Mortgage Corp., the mortgage-finance firms taken into U.S. conservatorship in 2008.

The program applies to borrowers whose existing loans were issued before June 2009. Borrowers must have made on-time payments for the past six months and report not more than one late payment in the past year. Mortgages must be worth at least 80 percent of a property’s value to be refinanced. The program expires at the end of 2013.

“We believe these changes will make it easier for more people to refinance their mortgage,” said Edward J. De-Marco, the acting director of the Federal Housing Finance Agency. “This is not a massrefinance program.”

Obama promoted the new rules Monday during a visit to Nevada, which has the highest foreclosure rate in the U.S. Falling home prices continue to dog the broader economy by eroding wealth, stifling spending and triggering foreclosures. About 11 million borrowers are underwater, meaning they owe more than their homes are worth.

“Breaking this vicious cycle is one of the most pressing issues facing policymakers,” Federal Reserve Bank of New York President William C. Dudley said Monday at Fordham University in the Bronx, N.Y.

While the Home Affordable Refinance Program was started with a goal of reaching 5 million borrowers, as of August, fewer than 895,000 borrowers have been helped. That number could double by the end of 2013 under the expanded program, according to a Federal Housing Finance Agency projection.

The changes should encourage more lenders to participate, DeMarco said. Lenders can’t be faulted for a bad appraisal, for example, because under the new program they won’t be required in most cases, he said.

Mortgage lenders are “particularly gratified” at that change to the plan, said David H. Stevens, president and chief executive officer of the Mortgage Bankers Association in Washington. “These changes alone should encourage lenders to more actively participate.”

Other exemptions are being developed and will be released next month, DeMarco said.

The loan modification program was refined after long negotiation with lenders, mortgage insurers and real estate title companies, Housing and Urban Development Secretary Shaun Donovan said.

The refinement of the loan modification program is one of several efforts the government is making to help raise home prices and promote consumer spending, Donovan said. Borrowers who refinance into current rates as low as 4 percent from 5 percent and 6 percent could save homeowners as much as $2,500 a year, he said.

Risk-based fees will be eliminated for borrowers who refinance into 20-year or shorter loans, DeMarco said. The faster amortization of those lowers risk for Fannie Mae and Freddie Mac, which rely on taxpayer support to operate.

Shorter loan terms also carry lower interest rates, pay down debt faster and “allow homeowners to get above water more quickly,” Donovan said.

Lawmakers welcomed the news, with some asking the administration to go further.

“We must not stop here,” said Rep. Elijah E. Cummings of Maryland, the top Democrat on the Oversight and Government Reform Committee. “Economists warn that the housing crisis is ‘ground zero’ for the economy and jobs, and this is only one modest step towards addressing it.”

Industry groups greeted the changes with qualified support.

“It’s a good tool in the toolbox,” said David Stevens, president of the Mortgage Bankers Association.

While the changes help, he cautioned, they won’t do anything for the 4.2 million delinquent homeowners. They also don’t apply to millions of mortgages held outside Fannie Mae and Freddie Mac.

Many problem loans were in places where housing prices soared. Fannie Mae and Freddie Mac had tougher underwriting standards and didn’t have anywhere near the delinquency and default problems of those linked to Wall Street banks that pooled mortgages into complex bonds.

“The real question is what do you do in those cases? There is no FHFA or institution in conservatorship by the government who can step in and say, ‘You are going to rewrite these loans,’” Stevens said. “The only way you could actually address those is to fund the negative equity or pay to refinance those through some other program.”

The administration acknowledged Monday’s plan is no cure for the housing market.

“This is just one piece of a broader strategy to help,” Gene Sperling, head of the National Economics Council, said during a conference call with reporters. He declined to project how many homeowners might benefit from the changes.

Information for this article was contributed by Lorraine Woellert of Bloomberg News; by Jim Kuhnhenn and Julie Pace of The Associated Press; and by Kevin G. Hall of McClatchy Newspapers.

Front Section, Pages 1 on 10/25/2011

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