As the housing sector remains a drag on economic growth, the federal appetite to help struggling homeowners with their underwater mortgages is growing while skepticism about programs that aim to do so remains.
Nearly two months after a pair of senators unveiled their proposal, the Federal Housing Finance Agency (FHFA) announced Friday plans to work toward identifying and reducing barriers that would provide a refinancing option for nearly 3 million homeowners who are current on their mortgage payments but are negative in equity.
Edward DeMarco, acting director of the FHFA, said the independent federal agency “is carefully reviewing” the mechanics of the Home Affordable Refinance Program (HARP), created in 2009, to determine whether there are “frictions” that can be eased that will help borrowers while reducing risks for Freddie Mac and Fannie Mae, the government-sponsored enterprises (GSE) which FHFA oversees. The program only covers loans guaranteed by Fannie and Freddie.
FHFA is considering opening up the program to more borrowers who are current on their loans, including those who owe more than 125 percent of what their homes are worth, the agency’s limit.
“The final outcome of this review remains uncertain but FHFA believes this undertaking is worthwhile and consistent with our conservator responsibilities,” DeMarco said.
“There are several challenging issues to work through here,” he added.
DeMarco said staff has been meeting with industry stakeholders to determine the course of action.
As of June 30, more than 838,000 borrowers had refinanced through the HARP program, fewer than expected or eligible for the program.
President Obama told a joint session of Congress on Thursday that the administration will attempt “to help responsible homeowners and we’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent.”
“It’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices,” Obama said when he unveiled his $447 billion jobs-creation program.
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The problem is that most struggling homeowners own houses they can’t afford to live in, due to either having had a large loss of income (they lost their job), or frequently, having purchased an expensive house they never could afford and having planned on constantly rising prices and refinances to pay for the house (i.e. they were speculating on housing prices rather than investing in a family home).
The agency’s policy of “helping”,in other words, consists of bailouts or subsidies rather than a program to help people settle into homes that are affordable – which is how we got into the mess to begin with.