President Obama announced a new plan to help home owners who want to take advantage of ultra-low mortgage rates and lower their mortgage payments by refinancing. The administration hopes changes to the Home Affordable Refinance Program will help about 1 million home owners qualify to refinance.
Here are more details about the newly announced changes to the program:
HARP: The Home Affordable Refinance Program started in 2009. It allows home owners to refinance at lower rates without having to meet the typical requirement of having at least 20 percent of equity in their home. Under current guidelines, many underwater borrowers have been ineligible for the program because their home values had to be no more than 25 percent below what they owed their lender. Also, some home owners were unable to afford the closing costs and appraisal fees to participate.
- The 125% loan-to-value cap, which prevented borrowers from refinancing if the value of their homes had tumbled, has been removed.
- Borrowers will not need a new property appraisal if Fannie and Freddie have enough data in their automated valuation system to estimate the value of the property. This not only speeds up the refinancing process but also eliminates the appraisal fee.
- Certain fees associated with the risk of the loan will be reduced. Those fees will be eliminated for borrowers who refinance their mortgages into a shorter-term loan such as a 20-year mortgage or a 15-year mortgage.
- The program, which had been scheduled to expire in June 2012, has been extended through the end of 2013.
- Those who bought a house as their primary residence but now hold the property as an investment will be able to refinance through HARP at an additional cost.
- Lenders will be waived of certain liabilities on the original loans if they refinance those loans through HARP.
- Home owners with loans backed by Fannie Mae or Freddie Mac can participate. (Home owners can visit: freddiemac.com/mymortgage or fanniemae.com/loanlookup to determine if their mortgage is owned by either).
- Home owners must be current on their mortgage.
Start Date: The changes could take effect by Dec. 1. HARP also is being extended through 2013 to allow more home owners the opportunity to qualify.
Impact: Will it work? The administration hopes that by home owners being able to lower their monthly mortgage payments (with an average annual savings of $2,500 expected), they’ll be more likely to stay current on their mortgage and avoid foreclosure. Also, the administration hopes that it will then free up household money to start spending more on other things, which could provide an overall boost to the economy.
In my opinion, the revised HARP requirements are a step in the right direction but the housing market needs much more than a refinancing plan designed to help 1 million homeowners. Where is the help for homeowners who are delinquent on their mortgages? What about unemployed homeowners? We need the administration to support easing of the current restrictive lending environment.
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