Administration Increases Help For Distressed Borrowers
Some 200,000 people have applied for help under the Obama Administration’s Home Affordable Refinance Program (HARP), but to date the program has been extremely restricted.
The problem? HARP has both a refinancing plan for those facing foreclosure and a separate modification plan for those who want to refinance but lack equity. Under HARP, you can refinance even if you’re home is worth less than your debt, but only a little less. HUD gives this example:
“Currently, only those borrowers whose first mortgage does not exceed 105 percent of the current market value of the property are eligible for the Obama Administration’s Home Affordable Refinance Program. For example if the property is worth $200,000, the borrower must owe $210,000 or less.”
125 Percent Plan
Now, however, the 105 percent limit has been raised to 125 percent. This means if the home is worth $200,000 a borrower can refinance as much as $250,000 in debt.
The HARP expansion is great news for homeowners in hard-hit areas such as California, Nevada, Arizona, Florida, Michigan, Illinois, Ohio and Pennsylvania. It means a very much larger number of borrowers will now be able to switch into cheaper and safer loans.
Caution
Prudent underwriting standards require that borrowers have equity. The Obama program allows people to refinance with no equity, not a penny. This is a risky proposition and goes far beyond traditional, and reasonable, lending standards. That said, the mess inherited by the Obama Administration requires unusual risks to prevent a worse financial situation from emerging.
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Comment by Liz Freeman on 2 July 2009:
I guess, being one of those NV homeowners, that I don’t get it. It’s not like people get to refi out of an underwater option ARM to a Fannie FRM. And ARM rates on conventional mortgages are pretty nice right now. The people who took out conventional mortgages in the first place would have to really run the numbers to see if the cost of refinancing is worth it.
Comment by Peter G. Miller on 2 July 2009:
Given that loan rates are substantially below 6 percent there may be a lot of borrowers who got financing in the past three to five years and now want to move from toxic loans, ARMs and fixed-rate mortgages with higher rates. If such moves mean we have fewer foreclosures then everybody wins.