Refinance programs may provide underwater mortgage relief
As the housing market has struggled to recover from the crash that sent home values spiraling downward, the federal government has introduced several programs that would allow homeowners to refinance their mortgages at the current historically low interest rates. However, for the millions of homeowners who are underwater on their mortgages (meaning they owe more on their mortgage than the home is worth), these options have not been available.
That may soon change, however, with some new reforms to the federal Home Affordable Refinance Program (HARP). HARP was launched back in 2009, with the goal of allowing homeowners with little or no home equity to refinance at lower interest rates and minimize their monthly mortgage payments and likelihood of going into foreclosure. Previously, homeowners with no equity would not have been able to refinance.
However, banks were hesitant to participate in HARP. Under the original program, a Fannie Mae- or Freddie Mac-guaranteed mortgage loan, which a loan must be to qualify for HARP, must meet certain standards. If it does not meet those standards and the homeowner defaults, the bank would be forced to buy that loan back. Clearly, this was a costly proposition for banks, so they generally declined to participate.
The new reforms, which were made in response to pressure from Georgia Senator Jonny Isakson and several other lawmakers, eliminate that so-called buy-back risk, significantly minimizing the potential for loss to banks and mortgage lenders. As a result, it is projected that several million underwater homeowners may now qualify for refinancing under HARP.
One remaining requirement of HARP is that homeowners must have taken out their loans prior to June 2009. Regulators believe this will significantly decrease the likelihood that there will be errors in the loan’s underwriting.
Source: ProPublica, “Surprise on Refi Revamp: Key Regulator Agrees to Major Program Reforms,” Paul Kiel, Oct. 24, 2011