The Obama administration is finally realizing that a major refinancing program to help troubled borrowers could help stabilize the housing market and give the economy a jolt — and it would be particularly effective if it reaches an estimated 11 million underwater mortgagors.
“You are not going to have the kind of robust economic recovery that you need with so many homeowners struggling under this debt,” said Glen Corso, managing director of the Community Mortgage Banking Project.
Treasury Department and Department of Housing and Urban Development officials are now reviewing the Home Affordable Refinance Program (HARP) and Federal Housing Administration short refinance programs to boost refinancings, ASR sister publication National Mortgage News has confirmed.
Mortgage executives note there are various ways the White House can enhance the HARP program, allowing Fannie Mae and Freddie Mac to refinance more of their underwater borrowers. The GSEs could raise their LTV cap to 150%, or reduce risk-based fees they charge borrowers via the HARP.
But any changes must be acceptable to the Federal Housing Finance Agency (FHFA), which is charged with conserving the value of Fannie and Freddie’s assets.
Back in January, FHFA acting director Edward DeMarco notified Treasury that he would not permit the GSEs to participate in a principal reduction program. DeMarco told Treasury that reducing the principal on GSE-guaranteed loans is not consistent with the FHFA’s “conservatorship responsibilities of minimizing taxpayer costs.”
Last week FHFA officials declined to comment on possible changes to the HARP program. But many are expecting the FHFA will raise objections.
Some were surprised, however, when the FHFA recently endorsed a proposal to sell Fannie and Freddie REO in bulk to private investors so the single-family properties could be turned into rentals.
And they were particularly surprised the GSE regulator would permit Fannie and Freddie to enter into joint ventures with private investors. Currently, the HARP program allows Fannie and Freddie to refinance borrowers with LTVs of 105% to 125% to refinance.
Since its launch in April 2009, HARP has helped 47,500 underwater borrowers refinance and take advantage of lower interest rates. Supposedly it lowers the risk of the loan because the borrower has more money to make their payments and meet other expenses.
The FHA’s short refinance program requires principal reductions. But it also allows conventional borrowers to refinance into an FHA-insured loan. Lenders have completed just 245 of the FHA-insured short refinancings since it was rolled out last October.
“As one would expect, we continue to look for ways to ease the burden on struggling homeowners and to help stabilize the market, whether that’s through assessing new proposals or older ones worth reconsidering as market conditions change. That said, we have no plans to announce any major new initiatives at this time,” an administration official said.