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Government-Backed Refinance and Modification Programs Starting to Work?

[Jul 21, 2009.]


Over the last few weeks, government-backed refinance and modification programs have finally begun to have an impact, albeit small, on the U.S. housing finance environment. Or at least that's what several news stories are suggesting. The Wall Street Journal, for example, examined loan modification realities with a sharp eye, and notes that the wheels are in motion.

It seems that lenders and borrowers are starting to work together to get refinance and modification deals done. More deals than before, that is. But maybe that's not saying much.

Loan Modification Still Far From Easy

The Wall Street Journal story, told from the perspective of the lender, illustrates how difficult a loan modification actually is. Putting aside for a moment the massive issue of moral hazard ("Why should my neighbor get a better deal on his loan than I do?"), loan servicers are bogged down with applications.

Saxon, the loan servicing firm profiled by the Journal, has hired four outside companies to help handle the influx of requests for loan modifications. Once a 9 to 5 job, Saxon has added a night shift from 4 to 11 p.m.

Meanwhile, a woman named Diana Wiles has been working on her loan modification for nearly six months, and has been approved, then un-approved, then again, and is still trying to work something out.

Home Affordable Refinance Program Also a Slow Process

The Home Affordable Refinance program was designed to help millions of homeowners. So far, these refinances into special mortgages at rates as low as 1.75 percent have helped merely thousands.

Again, though, the paperwork is a major headache. To find out if you can qualify for a conventional refinance, go here. To give HARP a try, read this article to get an idea of the benefits and restrictions (although observe that the loan-to-value loan limit has since been raised from 105 percent to 125 percent).

As HARP has struggled to get off the ground, many banks have taken it upon themselves to do HARP-like refinance programs, while staying away from the actual HARP program and its rat's nest of government paperwork. For homeowners who are not severely underwater and have loan amounts under the FHA conforming limit of $417,000, working directly with the lender without regard for HARP is highly possible.

Loan Amount Over $417K? Forget About Government-Backed Mortgage Assistance

Many changes have been made to the Home Affordable Modification and Refinance Programs, and many more changes are being discussed, but raising the loan limits does not appear to be one of those changes that's on the table.

Homeowners with loan amounts of more than $417K should not rely on any government-backed modification or refinance program.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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