With mortgage interest rates at historic lows, the program allows so-called “underwater” borrowers to secure better rates while paying less in the refinancing process. It applies to homeowners who are current with their mortgage payments, with no late payments in the last six months and no more than one in the past year.
The Federal Housing Finance Agency has announced a series of changes to the Home Affordable Refinance Program to help provide refinancing to homeowners who owe more than what their homes are worth.
With mortgage interest rates at historic lows, the program allows so-called “underwater” borrowers to secure better rates while paying less in the refinancing process. It applies to homeowners who are current with their mortgage payments, with no late payments in the last six months and no more than one in the past year.
“Far too many Americans have done everything right — they have paid their bills, but are still stuck with an underwater mortgage,” said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, in a conference call this morning. “More than 1 million people have refinanced through HARP, but we haven’t reached the scale we hoped and the scale we need to reach. The president is working to remove barriers to help responsible homeowners with little or no equity in their homes to refinance.”
The program, which will be extended until Dec. 31, 2013, removes the current 125 percent loan-to-value ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac. It waives certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac, and also eliminates the need for a new property appraisal where there is a reliable automated calculation model estimate.
“For many homeowners, this will reduce the key elements of closing costs that stood in the way of refinancing,” Donovan said, a family could save an average of $2,500 in refinancing costs. “We hope this will be a boost to the housing market and the economy as it puts more money in the pockets of families across the country.”
The immediate impact of the program will be that more homeowners will be able to refinance at lower rates, therefore lowering their monthly payments and reducing the prospect of default, said Patrick J. O’Keefe, director of economic research at J.H. Cohn, in Roseland.
“The secondary impact will be that this should reduce the number of mortgages that go into default and ultimately lead to foreclosure — because those foreclosures exert a downward pressure on home prices,” O’Keefe said. “The administrative modifications to the underwriting of loans also make it easier for the lenders.”
