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Home Affordable Refinance Program: A lifeline to 'underwater' borrowers?

Home Affordable Refinance Program did not reach as many borrowers as officials had hoped. By including 'underwater' loans, the Obama administration hopes to stem the tide of foreclosures.

By Ron SchererStaff writer / October 24, 2011

President Obama speaks about jobs and housing after meeting with the Bonilla family (background) at their home in Las Vegas, Monday. Obama unveiled new measures to help struggling homeowners in Las Vegas on Monday in the first leg of a campaign-style swing through western states that may be crucial to his re-election in 2012.

Jason Reed/Reuters


New York

The Federal Housing Finance Agency will now make it easier for some Americans who are “underwater” on their homes to refinance them at today’s eye-popping low rates.

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Yes, homeowners, who have diligently made their monthly payments but have relatively expensive mortgages of 6 or 7 percent, may now be able to join Americans who are paying 4.25 percent or less for a 30-year fixed-rate loan.

Until now, most banks would not refinance a loan if it was “underwater” – the house was worth less than the amount mortgaged. Owners of such homes could merely fantasize how much easier it would be on their monthly budget if they could lower their mortgage payment.

Now borrowers whose loans were purchased by Fannie Mae or Freddie Mac on or before May 31, 2009, might be eligible to refinance under the Home Affordable Refinance Program (HARP) as long as they are current on their mortgage and have had no late payments for the last six months. The new rules would start to go into effect on Nov. 15th and would apply no matter how much the homes have shrunk in value.

The changes are part of an effort by the Obama administration to slow the avalanche of foreclosures. Administration aides reason that if homeowners have lower payments, there will be fewer foreclosures which will also help to stabilize home prices.

“Clearly refinancing is a key focus for President Obama this year,” Gene Sperling, director of the National Economic Council, said at a press briefing on Monday.

President Obama was announcing the program in Las Vegas at a private residence Monday afternoon. However, both the Federal Housing Finance Agency (FHFA) and HUD Secretary Shaun Donovan briefed reporters earlier in the day.

Mr. Donovan said it was difficult to say how many Americans might take advantage of the changes in the program. Under the original program, which was initiated under President George W. Bush in 2008, fewer than 1 million homeowners refinanced their houses.

“It did not reach the scale we had hoped and the scale we need to reach,” said Donovan. To try to get more people eligible for refinancing, FHFA agreed to waive many fees and the need for a new appraisal.


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