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Feds ramp up efforts to help struggling homeowners refinance mortgages
As the housing sector remains a drag on economic growth, the federal appetite to help struggling homeowners with their underwater mortgages is growing while skepticism about programs that aim to do so remains.
Nearly two months after a pair of senators unveiled their proposal, the Federal Housing Finance Agency (FHFA) announced Friday plans to work toward identifying and reducing barriers that would provide a refinancing option for nearly 3 million homeowners who are current on their mortgage payments but are negative in equity.
FHFA is considering opening up the program to more borrowers who are current on their loans, including those who owe more than 125 percent of what their homes are worth, the agency's limit.
"The final outcome of this review remains uncertain but FHFA believes this undertaking is worthwhile and consistent with our conservator responsibilities," DeMarco said.
"There are several challenging issues to work through here," he added.
DeMarco said staff has been meeting with industry stakeholders to determine the course of action.
As of June 30, more than 838,000 borrowers had refinanced through the HARP program, fewer than expected or eligible for the program.
President Obama told a joint session of Congress on Thursday that the administration will attempt "to help responsible homeowners and we’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent."
"It's a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices," Obama said when he unveiled his $447 billion jobs-creation program.
The congressional effort to provide an avenue for those underwater on their mortgages has been ongoing for the past several months -- led by Sens. Barbara Boxer (D-Calif.) and Johnny Isakson (R-Ga.).
The duo have teamed up on legislation that would allow homeowners up-to-date on their mortgages but are underwater on their loans to refinance into record-low fixed-rate -- near 4 percent -- loans.
Boxer said she was "heartened" by the FHFA's move. She said, “This economic turnaround is being slowed by the housing crisis and helping responsible homeowners refinance at lower rates will put thousands of dollars back in the pockets of families and help keep them in their homes.”
Isakson is backing efforts by the White House and FHFA to help homeowners.
"There were some good new things included in his [jobs] plan, including the refinance provision on existing mortgages held by Freddie Mac and Fannie Mae in which homeowners who are still making their payments, even on houses in distress, could lower their payments by taking advantage of the current low interest rates," he said. "That should significantly help the housing market."
The Obama administration remains under pressure to find a way to improve the distressed housing market, which is experiencing record high foreclosures, historic lows in sales of new and existing homes, rock-bottom prices and potential homebuyers constrained by negative equity, high credit standards along with upward of 20 percent down payment requirements, all despite record low interest rates.
While some federal officials say Fannie and Freddie might benefit from increasing their portfolio of loans that won't default, a Congressional Budget Office (CBO) working paper released Thursday questioned whether expanding the program to help millions of homeowners would boost the housing market.
When CBO considered a one-year program that would let homeowners refinance into the lowest interest rates, its report found that 2.9 million mortgages worth $428 billion would refinance, resulting in 111,000 fewer defaults.
That would save borrowers $7.4 billion, resulting in savings for the GSEs and FHFA of $3.9 billion and cost the federal government about $600 million, the CBO report found.
Losses would hit those investors holding mortgage-backed securities -- between $13 billion and $15 billion, most of which would be transferred to borrowers.
"Because the estimated gains and losses are small relative to the size of the housing market, the mortgage market, and the overall economy, the effects on those markets and the economy would be small as well," the report said.
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