WASHINGTON — A housing regulator and the Obama administration on Monday are set to unveil a major revamp of a home loan refinancing program aiming to enroll hundreds of thousands of borrowers whose homes have declined in value.
The plan is the latest White House effort to deal with one of the most-critical impediments to the economy — a stagnant housing market caused in part by elevated numbers of Americans who owe more than their homes are worth. The initiative isn't new, but retools an existing program. It comes after numerous Obama administration efforts to stabilize the housing market have struggled in an economy with stubbornly high unemployment.
The overhaul will let borrowers refinance regardless of how far their homes have fallen in value, eliminating a previous limit of 125% of a loan's current value. The plan will streamline the refinancing process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments, according to administration officials and an official at the Federal Housing Finance Agency.
If successful, it could open up refinancing to borrowers in Nevada, Arizona, Florida and California who are paying above-market interest rates and are deeply "underwater," owing more than their houses are worth. However, refinanced loans for those deeply underwater borrowers can't be sold into traditional pools of mortgage-backed securities issued by Fannie Mae and Freddie Mac. It will take time to develop a way to sell these bonds. Officials say that isn't likely to happen before early next year.
President Barack Obama is expected to tout the program in Las Vegas on Monday.
Officials at the FHFA, which regulates Fannie and Freddie, estimate that between 800,000 and 1 million more borrowers should be able to refinance. "It's in our interest to have these borrowers refinance into lower rates and continue to pay," an FHFA official said. "They are good, solid paying borrowers."
The HARP program will be extended through 2013, beyond its current expiration date of June 2012, officials said, in a bid to encourage banks to make a greater commitment to the program. The program, however, is limited to loans that Fannie and Freddie guaranteed before June 2009. Loans that have refinanced in the past 2 1/2 years, including those through HARP, won't be eligible to refinance under the program.
Mark Zandi, chief economist at Moody's Analytics, said the changes could open the program to an additional 1.6 million borrowers through 2013, assuming that interest rates stay near 4.25% next year and 4.75% in 2013.
Regulators are revamping a program rolled out two years ago, the Home Affordable Refinance Program, or HARP, which lets borrowers with little less than 20% in equity to refinance if their loans are backed by Fannie Mae or Freddie Mac. President Obama announced HARP roughly one month into his presidency. So far, only 894,000 borrowers have used it, of which just 70,000 are significantly underwater.
Under changes to be announced Monday, banks will be largely shielded from the risk that they will have to buy back HARP mortgages. They only will have to verify that borrowers have made their last six payments, have no more than one missed payment in the last year and that they have a job or another source of passive income.
Those kinds of changes are a pre-requisite for "any game-changing refinance activity," said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse.
The firms, and their regulator, the Federal Housing Finance Agency, have agreed to waive those fees for borrowers that refinance into loans with a shorter term, such as a 15-year mortgage. They'll also reduce the fees, but not eliminate them entirely, for everyone else.
Fannie and Freddie will issue final pricing information and other technical details sometime about Nov. 15, and some banks have said that they could begin taking applications under the new program by as soon as Dec. 1. Doing so is expected to streamline the refinance process, eliminating the need in many cases for borrowers to obtain appraisals or to provide extensive income documentation.
Mortgage insurers have also agreed to make it much easier to transfer existing mortgage insurance coverage, which has blocked many borrowers from refinancing.
In past downturns, lower interest rates engineered by the Federal Reserve provided a bigger boost to the economy. Falling mortgage rates triggered a refinancing wave that lowered homeowners' mortgage payments, freeing up cash for other things. That helped to stimulate spending that boosted economic growth.
This time around, ultra-low mortgage rates - now averaging just 4.11%, according to a Freddie Mac survey - haven't done as much for the economy because many homeowners haven't been able to refinance.
"The Fed has done a lot to bring mortgage rates down, but it's not very effective if people can't get a mortgage loan," Federal Reserve Chairman Ben Bernanke told Congress this month.
Another change involves fees that Fannie and Freddie charge banks for riskier borrowers.
