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Three Political Changes That Could Change Refinance Realities

[Aug 27, 2009.]


Home refinancing news is perhaps not quite as entertaining as following the beginning of football season, but the financial impact of mortgage finance news can be much more significant. One factor--perhaps the main factor--that could really and suddenly change the refinance options of borrowers is politics.

Here are three politically-motivated changes that are being discussed and would affect refinancing:

1. First Time Homebuyer Credit Extended

The first first time homebuyer credit, up to $7,500 but it was a loan and had to be repaid over a 15 year period, was a dud. The second first time homebuyer credit, of up to $8,000 and it's a fully refundable tax credit that does not have to be paid back, has been a success as measured by increased sales.

Realtors in some areas are reporting that up to 30 percent of buyers are first time homebuyers taking advantage of this credit. Overall, home sales have been up dramatically since the credit was instituted, with a 9.6 percent rise from June to July of 2009.

What does buying have to do with refinancing? Everything. More buyers means a stabilization in home prices, which allows banks to begin lending again using the home as security for the loan.

As a politician, what is the reason to stop this program on November 30?

2. First Time Homebuyer Credit Increased, Modified

Beyond a simple extension of the existing first time homebuyer credit, there is some possibility that the credit itself could be increased, perhaps to as much as $15,000.

Also, the requirement that buyers be "first time" (currently defined as not owning a home in the last three years) could be loosened to make anyone who purchases a home eligible for a tax credit. This would certainly help raise home prices and, thereby, ease the refinancing process.

However, the push to increase or modify this credit faces opposition from politicians (and the public) worried about about a rising deficit.

3. Fed Stops Purchasing Mortgage-Backed Securities

Up to this point, the Federal Reserve has propped up the mortgage finance market by purchasing mortgage-backed securities by the trillions when no other investors wanted them. But now the Fed is talking about stopping that practice, including not buying $1.25 trillion already promised.

The Fed is not an explicitly political agency, but it's only natural to assume that politicians will attempt to convince the Fed that continued buying of mortgage backed securities is a good idea.

Especially if the foreclosure crisis keeps on, there will be plenty of borrowers hoping to refinance that find themselves looking towards politicians for help and change.


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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