Obama Refinance Mortgage
Obama expands mortgage refinancing program
July 1, 2009
Obama Administration is expanding its mortgage refinancing program to allow more borrowers hard hit by falling house prices to attend.
Borrowers whose loans are now worth up to 125% of their home's value is now eligible to refinance their homes in foreclosure prevention Obama announced in February. Previously the limit was 105%.
Moving recognizes that home prices in many areas has declined so much that many people were shut out of the program.
Approximately 67% of homeowners in Las Vegas – one of the hardest stricken areas and where Housing Secretary Shaun Donovan announced an expansion Wednesday – owe more than their homes are worth.
More than one in five borrowers are now being water for homes in parts of California and Florida loses more than 50% of their value, according to Zillow.com, a real estate website. About 20 million people own homes less worthy than their Mortgages.
"The president's Make Home Affordable plan already helps far more than any previous foreclosure initiative and with today's announcement we will extend its reach further, "says Donovan.
How many more people will be drawn to the program now, is still a questions, particularly because mortgage rates are rising. Administration officials have no discretion.
Shifts slow to ramp up
Some 20,000 loans were refinanced before, according to the U.S. Treasury.
The initiative waives the requirement that homeowners has at least 20% equity in their homes, allowing them to take advantage of today's lower prices. Homeowners must still meet other criteria, including being current on their payments and have loans that are owned or backed by Fannie Mae and Freddie Mac.
Wednesday's expansion means those with homes worth $ 200,000 and mortgages as high as $ 250.000 can still qualify. Previously, these borrowers do not have loans of more than $ 210,000.
The program , Has been slow to ramp up. Borrowers have complained that banks do not accept their applications. The Mortgage Bankers Association last week cut its 2009-prognosis for Origination because fewer changes were made than they originally expected. The group said only 13,000 were made during the three months after the plan was launched.
The administration is expected that 4-5000000 mortgage borrowers would be helped. A Treasury official said Tuesday that the figure used on those who would be justified not necessarily those who would participate.
Administration officials have not updated figures on how many people would be eligible or join now that the criteria has been expanded.
The recent uptick in mortgage rates has blunted the plan benefit formula, as well. The Federal Reserve has been buying mortgage-backed securities and long-term Treasurys in an attempt to lower rates.
It worked for awhile. Rates hit a low of 4.84% on 28 April but is now at 5.45%, according to HSH Associates.
Since interest on mortgage has been in the 6% range in recent years, refinancing to the mid-5% range may not be worth it, says Keith Gumbinger, vice president with HSH Associates. A homeowner with a $ 200,000 mortgage at 6% would see a savings of about $ 64 a month if he refinanced at 5.5%, and that's before closing costs.
"If interest rates are low enough to justify getting into the process?" He said.
The administration's announcement comes on the same day as an industry group reported that demand for refinancing dropped 30% last week. Besides higher prices, rising unemployment contributes to the decline.
Borrowers with Freddie Mac loans refinance through their current service company can use the same, but those who want to go through another lender must wait on Oct. 1. People with Fannie Mae mortgage must use their current lenders and wait until Sept. 1.
A second part of the program allows eligible borrowers who are in default – or at risk – lower their monthly payments to exceed 31% of their pre-tax income. This can help those who do so much their jobs or who have monthly payments they can not handle. Homeowners, service companies and mortgage investors have few incentives to entice them to participate in the program.
The banks have extended more than 200,000 lawsuit amendment deals, according to the U.S. Treasury. Homeowners must make three monthly payments on time before the change is made permanent.
About the Author
Peter is one of the nation’s leading authority on foreclosure prevention, attorney performed loan modification and loss mitigation strategies. His firm The Loan Modification Network connects homeowners with a team of specialsts in all fifty states to assist homeowners in foreclosure prevention solutions and loan modifications. Call 1-800-680-0355 or go to http://www.us-loan-modification.com to learn more.