New federal refinance plan shuts out homes too far underwater, may help few in Florida
Palm Beach Post Staff Writer
Updated: 10:58 a.m. Saturday, Sept. 10, 2011
Posted: 9:28 p.m. Friday, Sept. 9, 2011
Recognizing the shortcomings in his once-heralded refinance program for struggling homeowners, President Obama asked Thursday for a revamp of the 2009 plan that has helped fewer than 840,000 borrowers nationwide.
The Home Affordable Refinance Program, or HARP, was created to encourage more homeowners to take advantage of record-low interest rates by allowing borrowers to refinance even if they owe up to 25 percent more on their loan than their home is worth.
Interest rates have continued to drop since the plan’s debut, with Thursday’s average rate for a 30-year fixed mortgage falling to a record 4.12 percent.
But millions of homeowners, especially in hard-hit states such as Florida where values have plummeted since real estate’s salad days, have been blocked from taking advantage of the federal plan.
The snag is that many borrowers are more deeply underwater than what is allowed in the program, which is available to homeowners whose loans are owned or guaranteed by Fannie Mae and Freddie Mac.
“The program, as it stands today, hasn’t done a whole lot for anybody,” Andy Seepersad, chairman of the government affairs committee of the Florida Association of Mortgage Professionals, said of HARP. “From the mortgage side of things, I’m not holding my breath until I see the details of a new plan.”
In South Florida, 46 percent of single-family homes with mortgages were underwater in the second quarter of this year. Nearly 57 percent of Treasure Coast home loans were underwater during the same time period, according to real estate analysis firm Zillow.
Another HARP requirement is that borrowers must be current on their mortgage and have no payments later than 30 days in the past year. More restrictive loan guidelines, such as higher credit scores and proof-of-income requirements, are also shutting out some homeowners from refinancing.
About 750,000 homeowners had refinanced through HARP at the end of the first quarter of this year, with 50,000 owing between 5 percent and 25 percent more on their loan than their home is worth. But that compares to an estimated 5 million underwater loans owned nationwide by Fannie and Freddie, according to a report released this month by the Congressional Budget Office.
The most recent HARP data raises the number of homeowners helped to 838,400 nationwide.
“Any time you can save someone money, that’s great,” said Bobby Bashwiner, a principal with Group One Mortgage in Jupiter. “But it doesn’t matter if they reduce it to zero if you don’t have a job.”
Obama gave no details in his speech Thursday about what tweaks could be made to HARP, but said a refinance at today’s rates can put “more than $2,000 a year in a family’s pocket.”
The initiative will need final approval from Edward DeMarco, acting head of the Federal Housing Finance Agency, which oversees the two mortgage companies. On Friday, he said, officials were “carefully reviewing the mechanics” of the program to “identify possible enhancements that would reduce barriers for borrowers already otherwise eligible to refinance using HARP.”
According to an analysis by mortgage market consultants Alan Boyce and Columbia Business School economists Glenn Hubbard and Christopher Mayer, if three-quarters of all borrowers with interest rates higher than 4.5 percent refinanced, it would leave consumers $70 billion richer.
The mortgage industry calculates the negative equity in a home, or how underwater it is, by figuring a “loan-to-value ratio.” To determine that, take the amount owed on the loan and divide it by the value of the home. For example, a loan with a principal balance of $300,000 on a home worth $240,000 would have a loan-to-value ratio of 125 percent.
“People beyond the 125 percent have zero options right now – none,” said Skip McDonough of Family Mortgage in Jupiter.
The Associated Press contributed to this story.
Figuring loan-to-value ratio
To calculate a home’s negative equity, take the amount owed on the loan and divide it by the value of the home.
For example, a loan with an unpaid principal balance of $300,000 on a home worth $240,000 would have a loan-to-value ratio of 125 percent. In other words, the owner owes 25 percent more on the loan than the home is worth.
For more information on the Home Affordable Refinance Program, go to www.makinghomeaffordable.gov
Related posts:
Leave your response!
You must be logged in to post a comment.