President Obama announced Monday that he is no longer waiting on the do-nothing Congress to act. He is using his authority to fix the foreclosure problem. He is making changes to HARP, the Home Affordable Refinance Program the government enacted and revised once before because it did not get results.
“We can’t wait for an increasingly dysfunctional Congress to do its job,” he said. “Where they won’t, I will,” the President said in Las Vegas announcing the new program. Las Vegas was the hardest hit city in the nation by foreclosures.
The original HARP program was supposed to help 5,000,000 people save their homes by allowing refinancing at rates and payments the homeowners cold afford. It was a failure helping only 822,000 people.
The main reason is that under the HARP program, barriers blocked many borrowers from qualifying, and banks were reluctant to assume liability for loans to homeowners who owe more than their homes current value.
This is interesting because the government was more than willing to loan banks more than their actual value to save them with TARP.
New Program allows upside down homeowners to re-finance
The new program is officially a program of the Federal Housing Finance Authority (FHFA). Under the revision, there’s no limit to how much a borrower can owe. Banks that refinance loans will be largely cleared of liability according to interim director Edward DeMarco. “We know that there are many homeowners who are eligible to refinance under HARP, and those are the borrowers we want to reach,” DeMarco said.
Fees will be especially reduced if borrowers take on a mortgage with duration of 20 years or less. Many homeowners have 30-year mortgages. Only borrowers whose loans are owned or guaranteed by Fannie Mae and Freddie Mac will be eligible. In addition, borrowers must not have missed any payments in the past year and must have taken out their loans before June 1, 2009, though exactly when will depend on the lender.
The program is not expected to increase costs for taxpayers though some borrowers might not be able to enroll until the first quarter of next year.
Program will help more homeowners
The new program is expected to help more families save their homes, but the number is up in the air. Brian Buetler of TPM reported that Moody’s top economist Mark Zandi said it would help. “Under the restrung HARP, I expect an additional 1.05 million [refinancings] through the end of 2012 and 1.6 million [refinancings] through the end of 2013 when the program ends,” said Zandi.
“While HARP won’t live up to the initial expectations of 4-5 million in refinancings, the program will ultimately provide a meaningful boost to the broader economy as financially stressed households will benefit from much lower mortgage payments. It will also provide a bit of help to the housing market by forestalling some mortgage defaults.
“While I think this was a very positive step, it isn’t a magic bullet for the housing market and economy,” Zandi added. “Policymakers will thus very likely have to do more to support the housing market and economy.”
According to the Buetler article, Dean Baker, co-director of the Center for Economic Policy Research, says it’s “hard to see [the program] amounting to much.” He assumes the revamped program to help closer to 500,000 homeowners over the next couple years.
“That’s something, but if we assume an average saving of $4,000 each, this gets us $2 billion in money freed up. Every little bit helps, says Baker, but much this programs offers less than is necessary to move the needle on unemployment or stabilize the housing market.
Hind sight is always 20-20
Perhaps the best move in 2008 and 2009 might have been to trust homeowners not banks. It would have been better to make loans directly to homeowners to save their homes rather than bail out banks on the hopes they would use the money to make loans to homeowners and businesses.
What banks did is buy up their own stock and give bonuses to their executives whose actions trashed the banks.
Millions of homeowners are hoping they will finally be able to refinance their homes at what Obama hope will be 4% instead of the high interest rates they are paying now. They want to keep their homes and hope someday, the value will grow.
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