Will Federal Refinancing Program Help States Most in Need?

San Francisco – Nearly 1 million struggling homeowners nationwide could get a lifeline to stave off foreclosure, thanks to changes to a federal housing program.

The Federal Housing and Finance Agency (FHFA) announced this week that it is removing some limits to a federal refinance program that would allow more borrowers who owe more than their homes are worth (commonly referred to as being “under water”) to take advantage of low-interest rates and other refinancing benefits.

The changes to the Home Affordable Refinance Program, (HARP) which began in April 2009 as part of Pres. Obama’s Making Homes Affordable Program, is set to take effect next month.

Prior to the change, only homeowners who met a cut-off of 125 percent on their home loan to home value ratio could qualify for the program. For example, under the old rules, a borrower who owed $200,000 with an interest rate of 6.5 percent, but whose house is worth only $160,000 has a loan-to-value ratio that met the cap. Now, homeowners will be able to refinance regardless of how much under water they are. As before, the program only applies to homeowners with loans through Fannie
Mae and Freddie Mac. Half of the mortgages in the United States are currently owned by the two companies, according to housing expert, Jacob Rugh at Princeton University.

HARP, which was slated to end next June, has been extended to December 2013.

The program has various restrictions. The mortgage cannot have been refinanced under HARP previously, and the borrower seeking to refinance must be current on payments, with no late payments in the past six months and no more than one late payment in the past 12 months.

Will Hardest Hit States Benefit?

Still, HARP may not have as big an impact in some states that have been hardest hit by foreclosures.

According to Princeton University’s Rugh, states like California, Arizona, Florida and Nevada that have been devastated by foreclosures, have fewer homeowners with mortgages owned by Fannie Mae and Freddie Mac.

“In my analysis of four hard hit zip codes in Phoenix, only about 1 in 4 loans were held by Fannie/Freddie,” he said.

These four states also have a greater percentage of homes under water compared to the national average.

According to Corelogic, a Santa Ana, Calif.- based research group, slightly more than a fifth of homes nationally are under water. As of September, Nevada had the highest negative equity percentage with 60 percent of all its mortgage properties under water, followed by Arizona with 49 percent, Florida at 45 percent, and California at 30 percent.

“High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery,” said Mark Fleming, chief economist with Corelogic.

Rugh said that these individuals who do not qualify for HARP program should be prioritized to receive help, particularly through housing counseling agencies.

Housing advocates say more is needed

Housing advocates and experts say they’re happy to see these changes help homeowners in need, but say more is needed to alleviate the housing crisis and help troubled homeowners who won’t benefit from the program.

“It is helpful,” said Kevin Stein, associate director of the California Reinvestment Coalition (CRC) “but it’s not necessarily helping those who are most at risk of losing their homes.”

And, he noted: “That is in the same hands,” referring to FHFA.

“They [servicers] could reduce [the amount of the] principal,” he said, “and we continue to see the same problem – the problem of ‘dual track’ (where servicers can foreclose on a property, while it may be in a modification process).”

Yet Stein said he’s also hopeful for HARP and recognizes that it will be different from HAMP. “People who will qualify for it will be likely to get it,” he said.

Maeve Elise Brown, executive director for Housing and Economic Rights Advocates (HERA), said that [the changes to HARP] have the possibility to be a great help but “the servicers have been an incredible road block,” she said. “And I’m a little fearful that they won’t step up to the plate to implement it.”

But according to Meg Burns, senior associate director for the new Office of Housing and Regulatory Policy of the FHFA, “They’re [servicers] enthusiastic about reaching out to their borrowers about this program.”

Burns also addressed housing advocates concerns regarding why the changes were not made earlier.

“There was no waiting,” Burns said. “This program has existed since 2009. We looked at the borrower pool and we saw that there were many who haven’t taken us up on the offer.”

The program has already helped 894,000 borrowers since it was established, she said, “but we’re trying to double that [figure].”

“This is not the magic bullet…we know that,” said Burns, “And our hearts go out to those who have subprime loans.”