Housing Finance Agency announced changes to the program last month
that have sparked optimism that it might help borrowers refinance
boom-era mortgages after all.
The Federal Housing Finance Agency projects changes to the program
could allow it to reach as many as 1 million additional homeowners
between now and the end of 2013, its extended expiration date.
The program has rescinded certain risk-based elements that ultimately
disincentivized borrower participation. Namely, risk-based fees
paid by borrowers who refinance into shorter-term products have been
eliminated, and similar fees paid by other borrowers have been
lowered as well. Also, the program has removed the provision
that limited participation to those whose mortgage loan-to-value
ratio was less than 125 percent.
Observers have pointed to the change to the mortgage cap as perhaps
HARP 2's most meaningful alteration, because of the propensity of
underwater borrowers across the country. According to
CoreLogic, 10.9 million, or 22.5 percent, of all residential
properties nationwide were in negative equity in the year's second
That share is even greater in San Diego, where 28.2 percent of all
properties with a mortgage are underwater. That accounts for 166,663
Additionally, borrowers will no longer need to pay for a new property
appraisal to refinance, provided there is an automated valuation
model in place through Fannie and Freddie. Previously,
borrowers struggling to stay current on their mortgage payments had
little incentive to seek a refinance, as long as these three
provisions were in place. The announced changes, combined with the
historically low mortgage rates currently available, have inspired
hope within the industry that borrowers will now seek to take
advantage of an opportunity to lower their monthly payments.
If that happens, it would lower the number of foreclosures facing the
housing market, and the downward pressure foreclosures put on prices.
There's also hope from the administration that the reduction to
borrowers' monthly mortgage payments would serve as a quasi-fiscal
stimulus. With less money dedicated to housing costs, homeowners
would conceivably have more to spend in the broader economy.
"If you give people this opportunity, make payments more
manageable, that'll help the housing market and in turn help the
economy," said Alan Gin, economist at the University of San
Diego. He also said San Diego would see a disproportionate
benefit from the changes, because of its higher share of underwater
"I think we're going to have fairly widespread adoption,"
said Norm Miller, director of real estate academic programs at the
Burnham-Moores Center for Real Estate at the University of San Diego.
"Those less likely to exercise strategic default and don't want
to mess up credit, they'll adopt. I think it'll be extensive."
John Olbrich, president of American Security Mortgage, said the
changes make it easier for people to make payments and stay in their
homes. "I don't see how it'll add any risk to government
at all," he said. "There might be an upfront cost, but in
the end, the savings will be greater."
Fannie Mae and Freddie Mac intend to issue operation instructions to
lenders by Nov. 15, under the hope that some will be able to
accommodate applications by Dec. 1. "I think what's going
to happen is this is going to get a positive response from
households, and given how underwriters behave now, they'll be
overwhelmed, and the question will be how they deal with the
volume," Miller said.
Courtesy of SDDT.