Expansion of Government Refinance Program

Filed under: Market Comentary

help meAccording to several sources, the US government is seriously looking into expanding its mortgage refinancing program that would now include borrowers whose mortgages aren’t backed by the government and who are liable to pay more than what their home is worth.

Such a move would benefit borrowers and provide a boost to the economy by unleashing cash that homeowners could spend elsewhere. According to CoreLogic, in the first half of 2012, homes that were less than the outstanding balance fell from 12.1 million homes to 10.8 million homes. However, even though home prices have picked up, around 10% of all homeowners with a mortgage are still underwater.

This program expansion will potentially include borrowers who have been previously locked out of the program due to their loans not being backed by firms such as Freddie Mac and Fannie Mae. Currently,  nearly half of all home loans are insured or owned by Freddie or Fannie, and all the underwater borrowers with their backing are allowed to refinance to get a lower mortgage rate if they are current on their home loan. The current program has been “unbelievably successful” according to Scott Simon, who heads up Pimco. The current program has benefited more than 330,000 underwater mortgages through October of 2012, which was up from around 60,000 in all of 2011.

So, if the current program has been so successful, the expansion of it should continue to help out homeowners. This new expansion has received congressional support. However, to reach President Obama’s desk, it will also need support of the firms’ regulator, the Federal Housing Finance Agency, which actually opposed a separate administration initiative. FHFA, however, has expressed support of the general idea of this new program.

The Congressional Budget Office has estimated that by allowing borrowers with above-market interest rates to refinance, it could save households around $2,600 per year, and, it could also reduce the risk that a small number of borrowers ultimately default on their mortgages, which would limit foreclosures.

The administration also has a proposal which would reduce rates for underwater borrowers through mortgage modifications. This proposal would allow borrowers to qualify for a reduced rate under the existing Home Affordable Modification Program. This new proposal would redefine the term “imminent default” to include borrowers who are deeply underwater.

If you think you may qualify for a mortgage refinance program, please feel free to give me a call so we can set up an appointment and talk about these programs.

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