photo credit: spike55151
On Monday, October 24th, the Federal Housing Finance Agency (FHFA) revealed a brand-new government mortgage refinancing program. The new program includes several rule changes to the Home Affordable Refinance Program (HARP) which permits homeowners who are sinking in debt to lower their mortgage debt. Mortgage loans backed by Freddie Mac and Fannie Mae that were sold to GSEs before May 31, 2009 are eligible for the new program. The new HARP rules eliminate the 125 percent LTV (loan-to-value) ceiling. Before the new guidelines, only owners who owed 25 percent more than their homes worth were eligible for HARP. New guidelines allow owners with above-80-percent LTV ratios.
The HARP programs end date has been extended out to the end of December 2013 instead of June 30, 2012 and is hoped to help hundreds of borrowers to improve their household finances while at the same time allowing them to remain in their homes. FHFA anticipates some lenders will be prepared to accept applications for the new program as early as December 1st of this year. HARP has already made it possible for almost a million owners to refinance their current loans; they expect these new provisions to help another one million borrowers who are drowning in debt.
In order to qualify, homeowners must be current on their monthly mortgage payments, but government officials think these new rules will prevent foreclosures after negating the chief "motivation behind strategic defaults." University of Chicago economists approximate that nearly 35 percent of mortgage defaults are strategic defaults. Several studies purport that borrowers who owe considerably more than their houses are worth are much more likely to give up altogether and simply walk away from their homes and their mortgage debt in some cases, even if they are able to keep up with their payments. Michael J. Williams, the president and CEO of Fannie Mae, says this new program is a "welcome development." He continues, "By removing some of the impediments to refinance, lenders can more easily participate in the program allowing more eligible homeowners to take advantage the low interest rates." Freddie Mac CEO, Charles E. Haldeman, Jr. agrees that, "These changes mark another step on the road to recovery for the nations housing market."
