Obama program lets underwater homeowners refinance

via San Francisco Chronicle

Carolyn Said, Chronicle Staff Writer

President Obama threw a lifeline to some underwater homeowners Monday in announcing his administration will revamp a program to refinance homes with mortgages greater than their current values.
"This will help a lot more homeowners refinance at lower rates," Obama said, speaking in a modest neighborhood in Las Vegas, a city walloped by foreclosures. The president said he would do "everything in my power to help stabilize the housing market."
The plan will streamline and expand the existing Home Affordable Refinance Program, or HARP, to make it easier to use with fewer fees, broader eligibility and no limit on how far underwater a home can be. The program so far has helped about 894,000 homeowners, far shy of the projected 5 million when it was rolled out two years ago.
Underwater homeowners who qualify will be able to take advantage of today's bargain-basement interest rates, which are around 4 percent. Since many are now stuck with much higher interest rates, they should save several hundred dollars a month by refinancing.
The expanded plan "is a small but meaningful step forward, particularly for the more hard-pressed areas of the country," said Mark Zandi, chief economist at Moody's Analytics.

1 million homeowners

Not all underwater homeowners will qualify, though. The administration expects to help about 1 million homeowners, a fraction of the 15.3 million nationwide who are underwater. In the nine-county Bay Area, about 250,000 homeowners owe more than their house is worth, according to real estate information service Zillow.
"This is still a targeted refinance program," said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. "The changes are not a silver bullet but are helpful. It's one tool that the servicer has to help borrowers, but it's just been made more useful."
To qualify, loans must be backed by Freddie Mac or Fannie Mae and must have been acquired by them before May 31, 2009. Homeowners must have been current on their last six payments and not have been late on more than one payment in the prior 12 months. Credit history and income generally will not be checked, but lenders will verbally verify borrower's employment. (If new payments will exceed previous payments by 20 percent or more, as could happen for borrowers who shorten their loan's term, income will be considered.)

Better for lenders

Several key provisions should make the revamped plan more acceptable to lenders, who previously were reluctant to write loans. Lenders no longer will be responsible for loans that default within a short period of time. Waiving that provision "will help reduce risk and streamline the process," Hobbs said.
Another obstacle was that holders of second mortgages could block refinances. The administration said it had won consent from the nation's largest banks to permit refinances of the primary mortgage when they hold the second mortgage.
Several changes make the program cheaper for homeowners. It will not require appraisals if automated value calculations are available. For homeowners who refinance into a mortgage of 20 years or less, some refi fees will be waived. Fees for other homeowners will be lower than currently, but specifics have not yet been set. Homeowners will be able to continue their existing mortgage insurance policies rather than being forced to accept new ones that would probably be more expensive.
Previously, HARP limited refis to people with a loan-to-value ratio of 125 percent; for instance, owing $500,000 on a home worth $400,000. The new plan has no cap on how underwater a home can be, greatly expanding the universe of people who may qualify.

Some excluded

It does have a floor, though. People with a loan-to-value ratio under 80, - i.e., those who have more equity - are excluded. Richard Redmond, a mortgage adviser with All California Mortgage in Larkspur, said that's a negative because some people with equity still have trouble getting a new loan.
"Qualifying has become much more strict," he said. "A number of self-employed people are having a great difficulty with it, for instance. Why not make this available for them?"
Another huge group excluded are people whose loans are not held by Fannie Mae or Freddie Mac. In pricey areas, such as Marin and San Francisco, many mortgages are too large to be held by those entities, Redmond said.
Some forthcoming plans may allow for refinances on mortgages not held by Fannie and Freddie. State attorneys general are negotiating with big banks to allow refis of underwater loans they hold as part of a settlement over shoddy foreclosure practices known as robo-signing. Knowledgeable sources said that provision is designed to court California Attorney General Kamala Harris, who had withdrawn from those negotiations.
Several experts said the revamped HARP will not make a big dent in foreclosures because most today stem from unemployment.
"This is not a home run," Zandi said. "The administration hit a single today, but they have to do more."
Other changes he'd like to see include amending tax rules to motivate investors to buy bank-owned foreclosures. He'd also like to see a broader option to refinance to adjustable-rate mortgages, which might be as low as 1 percent, given the Federal Reserve's intent to keep interest rates low, and allow some of the savings to go into principal reduction. (The plan allows for ARMs, but only at up to 105 loan to value ratios.)
Still, for those homeowners it is likely to help, the news was welcome.
"It would be great," said Jeanne Bishop, who owes $300,000 on her ranch-style home in Copperopolis (Calaveras County), now worth about $254,000. Her current mortgage is at 6 percent; a refi would save her $300 or $400 a month.
What would she do with the extra cash? "I would save some, spend some on my grandchildren (she has six) and put some money into fixing up the house," she said.
The plan's full details will not be released until Nov. 15. Some lenders could start implementing it as soon as Dec. 1; it will go through 2013. The plan's outline can be found at sfg.ly/uqiA9h.




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