Refinance Relief for Some Homeowners

[Mar 5, 2009.]

 

There is an estimated 4-5 million homeowners that could benefit from refinancing their mortgage due to historically low interest rates, however, they are unable to because they owe more than 80 percent of what their home is currently worth.

There is good news today for those homeowners - "Making Home Affordable" was announced by the Obama administration.

The goal of the plan is to help responsible homeowners who put money down when they purchased their home but due to falling home prices are now unable to refinance.

In addition to rewarding responsible behavior, there is a concern that if these homeowners are not helped and home prices continue to fall, many may feel less inclined to continue making their payments on time, if at all. Some of these homeowners are also unable to refinance from an adjustable rate mortgage to a fixed rate mortgage right now which may spell trouble once it begins to adjust. This would undermine any efforts of the administration in stemming the wave of foreclosures we've seen.

The details and guidelines related to this program and still not entirely clear - most of the emphasis has been placed on the loan modification portion of the plan. As of right now, all that is known is a homeowner's mortgages must've been financed by Fannie Mae or Freddie Mac and they'll have until June of 2010 to refinance.

Questions about how the loans will be underwritten or borrowers approved have not yet been answered. Some mortgage brokers also question if many homeowners will be able to refinance given the fees and pricing adjustments both Fannie Mae and Freddie Mac have implemented. There are also concerns over how borrowers with second mortgages will be handled.

Administration officials said homeowners should be patient as lenders put a process in place to implement the program and more information is released.

Source: US Treasury

 

About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.