Category Starting A Business

Four Percent Mortgage Proposed to Solve Crisis

Last updated on February 2nd, 2018


As expected, the recent spike in mortgage rates has led to wild new proposals to solve the ongoing mortgage crisis.

The latest proposal comes from Arizona businessman Kenneth Wm. Parker, owner of Parker Properties/Parker Development, who has introduced the so-called “4/40 for Freedom Loan.”

It’s essentially a government-backed mortgage set at a four percent interest rate with a 40-year amortization.

“Americans are begging for relief,” said Parker, founder of 4/40 for Freedom, in a statement. “The program benefits are immediate; lower mortgages means increased disposable income, which translates to available cash to stimulate the economy through investments and product and service purchases.”

“We have received enthusiastic support from the financial and business community regarding the program,” he added.

Expected savings from the program are 33-38 percent per month per household, which would certainly ease pressure on struggling homeowners and move much needed money back into the economy.

“If each homeowner saves an estimated $250 a month on their mortgage, all of a sudden they can make additional purchases and the effect on the economy will be tremendous,” Parker said.

Once passed by Congress, the program would be available for one year to both new and existing homeowners; those with a mortgage would receive loan modifications without a credit check or any other qualification (sounds great).

Jumbo loans would also be offered up to loan amounts of $3.5 million.

“As the economy improves and home values go up, homeowners will refinance with conventional mortgage programs and the U.S. backed real estate interest loan debt will be repaid, resulting in additional economic capital,” the release said.

You can read more about the program over at their site. It’s clearly a bit over the top, but I wouldn’t be surprised if we see subsidized mortgage rates soon if the government isn’t able to rein them in.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


FHA Refinance Applications Plummet in November

Last updated on November 30th, 2011


FHA refinance loan volume fell 29.9 percent from October to November, according to a FHA Single-Family Outlook released recently by HUD.

A total of 69,062 FHA loan applications were received for refinance purposes, down from 98,544 a month prior, and well below the 112,095 seen the same time last year.

It looks to be another sign that the refinance boom is quickly running out of steam, despite mortgage rates remaining relatively close to historic lows.

The popular 30-year fixed mortgage actually hit its lowest point during the week ending November 11, at a staggering 4.17 percent, but many homeowners probably already took advantage of the low rates beforehand.

Meanwhile, purchase money mortgage applications totaled 63,920, down 6.9 percent from October and 26.6 percent from the 87,142 seen a year earlier.

Reverse mortgages were down just 0.4 percent month-to-month to 8,217, but up a whopping 25 percent from the 6,571 applications seen in November 2009.

Perhaps the recent warning from Consumer Reports will, ahem, reverse that trend.

FHA endorsed a total of 131,258 mortgages for $26.1 billion in November, and as of the end of the month, had 6,745,827 cases in-force with an unpaid balance of $921 billion.

During the month, there were 588,947 FHA loans in serious default (90 days + delinquent).

The default rate jumped to 8.7 percent from 8.0 percent a month earlier, though it was attributed to a reporting problem with some smaller mortgage lenders.

And it’s still 0.6 percent lower than the 9.3 percent default rate seen a year ago.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Home Affordable Refinance Program Extended


Despite ongoing criticism and a number of recent bills aimed at ending several government mortgage assistance programs, the Home Affordable Refinance Program (HARP) has been extended by one year, per the Federal Housing Finance Agency.

The FHFA announced Friday that HARP’s original expiration date of June 30 of this year would be pushed back to June 30, 2012.

Additionally, Freddie Mac will exempt HARP mortgages from their recently announced pricing adjustments and Fannie Mae will conform their eligibility date to May 2009.

Through 2010, government mortgage financiers Fannie Mae and Freddie Mac purchased or guaranteed more than 6.8 million refinanced mortgages.

Of these, 621,803 were HARP refinances with loan-to-value ratios between 80 percent and 125 percent.

This total is up from 190,180 in 2009, when HARP first began.

HARP allows those with underwater mortgages (up to 125% loan-to-value) owned or guaranteed by Fannie Mae and Freddie Mac to refinance to take advantage of the historically low mortgage rates on offer.

The loan program actually seems pretty worthwhile, given the fact homeowners must be current on their mortgage payments and demonstrate the ability to repay their mortgages.

The Home Affordable Modification Program, which makes up the other half of the Making Home Affordable Program, is expected to be on the chopping block later this week, mainly because of poor performance (HAMP will only prevent 700,000 foreclosures) and high costs.

Of course, such bills to halt the program are likely just political, as President Obama has already noted that bills to end similar programs would be vetoed if they happened to make it to his desk.

The only possibility could be some fine-tuning to the existing programs, but even that is doubtful.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Mortgage Rates Expected to Stay Below Five Percent Through Early 2012

Last updated on November 30th, 2011


Here’s some good news if you’re looking to buy or refinance in the near future.

Mortgage rates, specifically 30-year fixed mortgage rates, are expected to stay below five percent through to next year, according to mortgage financier Fannie Mae.

The 30-year fixed mortgage rate averaged 4.80 percent in the first quarter of 2011, 4.70 percent in the second quarter, and is expected to remain unchanged in the third quarter before rising back to 4.80 percent in the fourth quarter.

In 2012, it’s expected to rise to 4.90 percent in the first quarter, 5.00 percent in the second quarter, 5.10 percent in the third quarter, and you guessed it, 5.20 percent in the fourth quarter.

So maybe there’s not that much of a rush after all…

“With a downgrade of the outlook for economic growth and the unemployment rate, as well as an improving inflation expectation, we now expect the Fed to postpone hiking the Fed funds rate until the second half of 2012, instead of earlier in that year,” wrote Doug Duncan and Orawin T. Velz, in a market analysis released today.

“Long-term rates are projected to rise only modestly, with mortgage rates remaining below 5 percent through early 2012.”

In other words, continued bad news is keeping mortgage rates at bay, and with home prices still under a lot of pressure from swelling inventory, it could be wise to take your time.

The pair also lowered their projected purchase-money mortgage origination volume “modestly” and revised refinance loan origination volume “somewhat higher” for the current quarter.

For 2011, total mortgage origination volume is expected to decline to $1.07 trillion from an estimated $1.51 trillion in 2010, with a refinance share of 53 percent.

Tip: What mortgage rate can I expect?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Bernanke Has Refinanced His Mortgage Twice in the Past Two Years

Last updated on March 9th, 2018

When deciding whether you should refinance your mortgage, you may look to your friends, family, and neighbors to see what they’re doing and/or to get advice.

After all, if they’re refinancing, maybe there’s something to it. But when it comes to financial advice, it doesn’t get much better than the Chairman of the Federal Reserve, Ben Bernanke.

Okay, okay, we know, he destroyed the economy and got us in this mess so we shouldn’t believe a word he says, right? Well, that’s up for debate, and that debate won’t take place here.

But the takeaway is that he and the Fed control monetary policy, and thus should have a good idea as to whether mortgage rates will be heading higher or lower.

And so this may explain why Bernanke has refinanced his mortgage twice in the past two years. Yes, two times! That almost makes him a serial refinancer. Well, not really, but it’s pretty awesome.

According to the WSJ, he lives in a rather humble 3-bedroom, 2,100 square-foot home outside Washington D.C recently appraised at $850,000.

He purchased the home for $839,000 all the way back in 2004 and currently holds a $672,000 mortgage.

In case you were wondering, it is indeed a 30-year fixed rate mortgage. Unsurprisingly, there is no adjustable-rate mortgage or option arm for Mr. Bernanke.

At the same time, it doesn’t appear that he’s been all that aggressive in paying off his mortgage. Perhaps he feels his money is better served in another financial instrument.

He Refinanced After “Operation Twist”

Back to those refinances…Bernanke refinanced his mortgage in late 2009, and then shortly after the Fed announced “Operation Twist” this past September.

Put simply, Operation Twist was the shifting of Fed holdings from medium-term bonds to long-term bonds, such as the 10-year bond.

When demand for bonds rise, associated interest rates fall. And these interest rates are tied to mortgages, and thus mortgage rates fell too.

So Bernanke’s second refinance happened around the time the 30-year fixed dipped to its current level of roughly 4% even.

And it has held pretty steady since that time, and likely won’t drop any lower. In other words, it appears as if Bernanke is in a pretty good place with regard to his mortgage.

He has a rock-bottom interest rate and positive home equity, albeit not a lot. But considering how bad things got, he seemed to do okay with his own personal finances.

Hopefully that means things will eventually improve for the economy as a whole, but as we all know, not everyone was so prudent in their decision-making.

Many borrowers pulled cash-out at the height of the market, and now owe much more than their mortgages are worth (underwater).

And probably won’t ever pay the money back, simply because they can’t afford their inflated mortgage payments and/or see no hope in recouping their home’s once sky-high value.

(photo: Medill DC)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


New Refinance Program Probably Won’t Mean Much

Last updated on January 9th, 2018


During President Obama’s speech to the nation last week, he mentioned that the White House would be working with the federal housing agencies to help more homeowners refinance their mortgages at today’s low rates.

And on Friday, the Federal Housing Finance Agency (FHFA) released a statement, noting that it “has been reevaluating an existing program, the Home Affordable Refinance Program (HARP), to determine if there are ways to extend the benefits of this refinance product to more borrowers.”

Currently, in order to be eligible for a HARP refinance, a borrower must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, be current on mortgage payments, and have a first mortgage that does not exceed 125 percent loan-to-value.

That last bit seems to be the issue at hand, as there are scores of borrowers who meet the first two guidelines, but not the third.

To give you an idea, 85 percent of the Miami and Orlando MSAs were underwater as of last year, with average LTV’s of 150% and 140%, respectively.

In Riverside, California, the average LTV was around 164 percent last year, and has probably worsened since then.

So pretty much all of the hardest-hit borrowers haven’t been eligible for HARP.

LTV Ceiling Lifted?

Under the new refinancing plan, the LTV ceiling would be lifted or possibly removed, allowing these types of borrowers to refinance to take advantage of the record low mortgage rates currently available.

But it’s very likely that you would still need to be current on mortgage payments to qualify.

And while the new proposal sounds decent in theory, many of these borrowers have been grappling with a lack of home equity for years now.

So if they were going to walk away, they probably would have by now. Or they would have at least missed a payment or two.

If payments are lowered for the select few who have stuck it through, but are deeply underwater, they’re still left holding onto a house worth much less than the mortgage.

How much better off will someone be paying $200 less per month on a $300,000 mortgage worth just $150,000?

Even if it does make a big difference, the program still banks on mortgage rates remaining low and home prices reversing course in a major way, as it doesn’t address principal forgiveness.

Targeting the Wrong Group?

Then there are the homeowners with mortgages not backed by Fannie and Freddie, which while far fewer in number, account for a huge chunk of the problem loans.

A few years back, former FHFA director James B. Lockhart noted that these private-label securities accounted for 62 percent of all seriously delinquent mortgages, and thus, were the root of the problem.

These have yet to be addressed on a large scale, and probably won’t be, aside from on a case-by-case basis.

And so there may be some economic stimulus associated with this program (more money in some pockets), but it certainly won’t be a silver bullet.

Perhaps only time will sort things out, as impatient as we are.

Concrete details of the program should emerge later this month…

Read more: Can I refinance with negative equity?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Chase Mortgage Refinance Rates Intentionally Inflated?

Last updated on March 11th, 2018


Those looking for a mortgage refinance may get a surprise if they bank with Chase.

The NYC-based bank and mortgage lender is currently advertising mortgage rates well above the national average.

The WSJ first reported on the “issue,” speculating that Chase is trying to pump the brakes on new loan origination because they’re “flooded with demand.”

The way they see if, if they raise their advertised fixed rates, borrowers may go elsewhere, thereby not disrupting their capacity constraints. Of course, it’s a dangerous game to play if and when demand slows.

For example, today’s refinance rates for a 30-year fixed are set at 5.00%, while a 15-year fixed is going for 4.375%.

The 7/1 adjustable-rate mortgage is pricing at 3.000%, while the 5/1 ARM is coming in at 2.625%.

Chase’s Refinance Rates

chase refinance rates

These compare to rates of 4.375% for a 30-year, 3.375% for a 15-year, and 2.625% for a 5-year ARM seen over at top mortgage lender Wells Fargo.

wells fargo rates

That’s right, the 15-year fixed is somehow pricing an entire percentage point higher at Chase, while the 30-year is more than a half point higher. Hmm…

And Wells Fargo mortgage rates aren’t necessarily the lowest out there either, and their interest rates on FHA mortgages are oddly high, so this just illustrates the strangeness of it all.

Perhaps Chase doesn’t have the manpower to originate, underwrite, and process all those would-be loans. For example, they may have enough mortgage bankers but not enough underwriters.

Maybe they’re focusing more on loss mitigation, including loan modifications and foreclosure decisioning? Or simply putting more time into their credit card and savings account businesses, as opposed to Chase mortgages, who knows?

A similar situation unfolded at Wells Fargo back in 2009 when the company said it couldn’t lower mortgage rates as much as it would like due to a high decline rate and lack of available staff.

Interestingly, Chase’s purchase-money mortgage rates are a completely different story.

Chase’s Purchase Rates

purchase rates

You can get a 30-year fixed purchase mortgage for 4.375%, a 15-year for 3.50%, or a 5/1 ARM for 2.25%.

Their ARM rates are actually beating Wells Fargo’s handily, but only if you’re looking for a purchase mortgage.

[Why are mortgage rates different?]

And as we all know, nobody is looking to purchase a home in this market, despite those rock-bottom rates. So that could yet another move to deter new business.

In fact, the Mortgage Bankers Association reported today that purchase demand hit its lowest point since 1996, so mortgages for home purchasing are clearly not highly sought-after.

Yep, housing demand is at its lowest point in 15 years, at the exact same time interest rates are at historic lows. Makes you wonder if buying a home is a good move at the moment, right?

And existing homeowners have seen their home equity get zapped, making a traditional refinance mortgage increasingly difficult to qualify for.

This is unfortunate, seeing that many borrowers could benefit from a lower monthly mortgage payment at the moment.

The moral of the story here is to shop around for your mortgage. If you want the best mortgage rate, don’t just get a single quote from the bank you have your checking account with.

Gather mortgage quotes online (they’re free you know), speak with a few national banks, ask a friend for a mortgage broker reference, and check out some mortgage rate tables to see what a difference the new rate will make versus your current mortgage.

Otherwise you could wind up with an astronomically high mortgage rate, simply because you didn’t know any better.

Read more: What mortgage rate can I expect?

(photo: mae.noelle)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Mass Mortgage Refinancing Plan: Obama’s Ace In the Hole

Last updated on January 25th, 2018

We’ve heard talk of mass refinancing plans for years now, but nothing has quite delivered.

Sure, the Home Affordable Refinance Program (HARP) was recently expanded to allow just about any homeowner to refinance, regardless of negative equity issues.

But since it was announced in late October, I haven’t heard too much about it. Perhaps because it’s voluntary for mortgage lenders and still comes with cumbersome underwriting requirements?

Now there’s word of a “true mass refinance program,” one that allows pretty much anyone to refinance to today’s super low mortgage rates with few, if any restrictions.

A blog post written by James Pethokoukis that appeared on the American Enterprise Institute website yesterday is grabbing some serious headlines at the moment regarding the supposed plan.

In short, it suggests that Obama is looking to replace the current FHFA director with one of his own, which will allow the President to implement such a program. Just in time for election season too (not that I want to get political about this).

And because the FHFA oversees both Fannie Mae and Freddie Mac, anyone with a mortgage guaranteed by the pair, which is most homeowners, will be able to participate.

How the Mass Mortgage Refinancing Plan Would Work

Apparently it would be modeled after a plan originally thought up by Columbia University economists Glenn Hubbard and Christopher Mayer.

Every homeowner with a Fannie/Freddie backed mortgage would be eligible to refinance their existing first mortgage to a fixed rate of 4% or less.

The only requirement would be that the homeowner is current on their mortgage, or that they become so for a minimum of three months.

Even those with FHA loans and VA loans would be eligible, though interest rates would be higher.

No other qualification criteria would be used – no appraisal requirement, no income verification, no asset documents, LTV limits, etc.

Homeowners would get the option of refinancing into a 30-year fixed or a 15-year fixed.

But only first mortgages can be refinanced, so any second mortgages would need to be resubordinated.

Why It Works

Fannie and Freddie would get higher guarantee fees for implementing the plan, and loan servicers would receive the right to originate/service the mortgages without being responsible for “reps and warranties” violations of past servicers.

Banks and mortgage lenders would be able to refinance the mortgages quickly and cheaply thanks to the lack of underwriting requirements.

Private mortgage insurers could continue to insure the mortgages, and with lower monthly payments the mortgages would be deemed safer.

Roughly 25 million homeowners would benefit from the program in the form of lower monthly mortgage payments, with estimated annual savings of $2,800 per homeowner, or $70 billion in aggregate reduced housing costs.

These lower mortgage payments would also serve to stabilize the housing market and reduce the risk of future defaults.

It could also motivate homeowners on the brink to stay current in order to participate, unlike many loan modification programs that only serve those who fall behind on payments.

This could effectively push home prices higher, easing home equity concerns for those “on the fence” about staying or going.

Additionally, taxpayers would stand to benefit because Fannie and Freddie would reduce their losses and lower mortgage payments would mean reduced mortgage interest deductions.

The only “loser” would be mortgage bondholders, which the economists argue have already benefited tremendously from government actions taken during the mortgage crisis.

Additionally, thanks to current roadblocks, the relatively slow rate of refinancing allowed these bondholders to benefit more than they would have historically.

So there you have it. A possible mass refinance program with very few constraints. Even ineligible borrowers would “benefit” indirectly if the housing market improved as a result.

Not that I’m sold on it.  There are still a ton of question marks, namely those who can’t afford even a reduced housing payment, those already in foreclosure, the excess housing inventory, the impact of future mortgage rates, etc, etc.

Regardless, it’s clear housing policy will play a major role in the upcoming election.

(photo: KE Design)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Do I Qualify for the National Mortgage Settlement?

Last updated on February 10th, 2012

In case you haven’t heard by now, the so-called “National Mortgage Settlement” was finalized today.

It’s the largest multi-state settlement since the Tobacco Settlement back in 1998, related to robosigning allegations that took place over the past several years.

Essentially, some of the nation’s largest loan servicers routinely signed off on foreclosure documents without doing their due diligence, and/or without the presence of a notary.

It will provide more than $25 billion in assistance to homeowners, participating states and the federal government.

For the record, all 50 states participated except for lonely old Oklahoma.

The offending parties in the National Mortgage Settlement include:

– Ally/GMAC
– Bank of America
– Citi
– JPMorgan Chase
– Wells Fargo

These are the nation’s five largest mortgage loan servicers.

Benefits will be provided to both borrowers whose loans are owned by the settling banks as well as to borrowers whose loans they service.

In other words, your mortgage may have been originated by another company and sold to one of these companies to be serviced. So be sure to check your loan documents if you think you may be eligible.

Where the Settlement Money Will Go

The bulk of the money, at least $10 billion, will go toward principal balance reductions. In other words, those who hold underwater mortgages will see their balances drop to get them above water.

But the assistance will only be directed toward those who are either delinquent or at imminent risk of default as of the date of the settlement.

The principal reduction will likely be facilitated via a loan modification, so borrowers will ideally end up with a smaller loan balance and a lower mortgage rate, which will certainly make mortgage payments much more affordable.

State attorneys general believe principal reductions will prove beneficial, and as a result, will be employed by other mortgage lenders not involved in the settlement.

Another $7 billion or more will be used for short sales and transitional services, forbearance of principal for unemployed borrowers, anti-blight programs, and benefits for service members forced to sell their homes at a loss as a result of a “Permanent Change in Station” order.

Loan servicers will also have at least another $3 billion at their fingertips to provide refinancing to borrowers who are current, but underwater on their mortgages.

These homeowners will be able to take advantage of the record low mortgage rates that were previously out of reach due to loan-to-value ratio restraints.

Additionally, $1.5 billion will be distributed to roughly 750,000 borrowers who have already lost their homes to foreclosure.

The states involved will also receive immediate payments of roughly $3.5 billion to help fund consumer protection and state foreclosure protection programs.

How and When Can You Get Help?

If you think you qualify for assistance, you can contact the offending mortgage servicer directly, although they should be contacting you…

For borrowers who lost their homes between January 1, 2008 and December 31, 2011, a claim form should be sent to you for one of those shiny checks.

You can also contact your individual Attorney General’s office to check eligibility, or to provide a current address assuming you moved and/or have been foreclosed on.

Unfortunately, relief won’t be immediate under the settlement. Over the next 30-60 days, settlement negotiators will be selecting an administrator to oversee the program.

And over the next six to nine months, this administrator will work with attorneys general and loan servicers to identify relief recipients.

It is expected to take three years to execute the entire settlement, so patience is a virtue here.

Who is Left Out of the National Mortgage Settlement?

Borrowers with Fannie Mae and Freddie Mac owned mortgages. And those with FHA loans.

This is more than half of the homeowners with mortgages in the United States.

So quite a few borrowers are missing out. But they can still get assistance via HARP 2.0, even if they are severely underwater. Or via the Broad Based Refinancing Plan currently in the works.

Additionally, those that have positive home equity likely won’t see any relief from this settlement.

Essentially, those that paid down their mortgages, or came up with a reasonable down payment, won’t qualify for assistance under this settlement.

While it seems like they’re losing out, they aren’t. This settlement is about shoddy foreclosure practices, so those that weren’t affected obviously wouldn’t receive any benefit.

However, they may receive the indirect benefit of a healthier housing market and higher home prices if the settlement works as it should.

It’s worth noting that the banks involved are still accountable for claims that may arise out of any other wrongdoings committed during the lead up to the mortgage crisis.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Obama’s Broad Based Refinancing Plan

It took a few weeks, but we’ve finally got concrete details regarding the Obama Administration’s so-called “Broad Based Refinancing Plan.”

First off, homeowners with Fannie Mae and Freddie Mac-backed mortgages who are unable to refinance their mortgage to take advantage of the near-record low mortgage rates will be able to go through HARP 2.0.

HARP 2.0 was introduced back in October to address the needs of homeowners who were too deeply underwater to meet the max loan-to-value ratio cap of 125 percent.

Borrowers with underwater mortgages backed by Fannie and Freddie will continue to go through this program assuming they meet the guidelines.

So nothing really changes here, except perhaps the actual adoption of the problem, which appears to have been sluggish thus far.

Refinancing Program for Non-GSE Mortgages

What about all the underwater borrowers with non-GSE mortgages, those that are not backed by Fannie and Freddie?

Well, Obama is “calling on Congress” to pass a new refinancing program geared toward these homeowners, managed by the FHA.

It would be open to all those with non-GSE mortgages (less jumbo mortgages) who have kept up with their mortgage payments.

The big distinction here is that it requires Congressional approval, which may be an uphill battle. So really it’s just an idea at this point, not a live program.

Still, these are the proposed guidelines:

  • Borrower is current on mortgage for past 6 months and hasn’t missed more than one payment in previous 6 months.
  • Minimum credit score of 580
  • Loan amount does not exceed max conforming loan amount
  • Loan is tied to a single-family, owner-occupied property

Borrowers who meet these very simple guidelines will apply via a streamlined process designed to make it easier and cheaper to refinance.

To determine eligibility, a borrower must only prove they are currently employed. However, even the unemployed can qualify if other requirements are met and they present “limited credit risk.”

A new tax return and appraisal is not necessary to refinance.

The Obama administration will work with Congress to set loan-to-value limits for loans submitted to the program.

While a number hasn’t been set, the Administration used 140 LTV as an example, noting that mortgage lenders could write down the balance of mortgages that exceed that number.

How Will the Refinance Program Be Paid For?

Good question. Well, the cost of the refinancing program is estimated to range anywhere from $5 to $10 billion (quite a range isn’t it).

To avoid any taxpayer burden, the refinancing plan will be fully paid for by the proposed “Financial Crisis Responsibility Fee,” which imposes a fee on the largest financial institutions.

This fee will be based on the size of the institution and risk of their activities.

The FHA, who is set to manage the program, will even pay for a borrower’s closing costs if they choose to go with a shorter-term mortgage, such as a 15-year mortgage.

Those who refinance into mortgages with terms of 20 years or less will have their closing costs paid for the FHA. The GSEs will do the same for HARP 2.0 borrowers.

The Administration hopes this will promote responsible borrowing and reduce the amount of time it takes for borrowers to get back above water.

HAMP Expansion

The existing Home Affordable Mortgage Program is also being expanded to help more borrowers receive assistance.

The first-lien mortgage debt-to-income ratio limit of 31% apparently eliminates certain borrowers from the program because it doesn’t address other monthly obligations.

So the program will consider secondary debt with more flexible debt-to-income criteria.

Additionally, rental properties will be added to the program so long as a tenant currently occupies them or the borrower intends to rent the unit.

Finally, the Treasury will offer bigger incentives to the owners of mortgages who agree to write down principal.

Currently, owners receive between 6 to 21 cents on the dollar for principal reductions. This amount will be tripled to 18 to 63 percent on the dollar.

Fannie Mae and Freddie Mac, who do not currently receive compensation for principal reductions on loan modifications, will also receive principal reduction incentives

The Losers

The obvious losers are holders of jumbo mortgages, who are more than likely homeowners in hard-hit states like California and Florida where home prices have plummeted.

There doesn’t appear to be any relief for this type of homeowner, which is certainly a concern.

Additionally, those behind on their mortgage payments won’t benefit from this new refinance program.

So really only borrowers who have been able to make their mortgage payment each month will benefit.

Also, investors who hold non-GSE loans won’t see any benefit. And those with poor credit scores will be out of luck.

In other words, plenty of homeowners will miss out here, but it’s a tall order to include everyone.

Homeowners Bill of Rights

For the record, the Obama Administration also introduced several other initiatives, including a “Homeowner Bill of Rights,” which will once again revamp and simplify mortgage disclosures.

This includes a foreclosure appeals process and guidelines that prevent conflicts of interest that wind up doing harm to homeowners, along with a joint investigation into loan origination and servicing abuses.

Major banks and the GSEs will also provide up to 12 months forbearance for unemployed borrowers.

Additionally, a pilot program that transitions foreclosed property into rental housing will be employed to stabilize neighborhoods and get the housing market out of its funk.

Final Thoughts

At first glance, it sounds like an awesome program to save housing once and for all. But upon closer inspection, a lot of homeowners are left out, as mentioned above.

Along with that, the borrowers that are targeted may not really be the ones that need help.

The reality is that millions of people who are currently behind on their mortgages are going to lose their homes. And this program won’t change that. It’s simply going to help those on the brink, or even those that don’t even necessarily need assistance to make their mortgage payments, but want to catch a break after buying at the wrong time.

Sure, if all goes well, it could reduce foreclosures to some extent, bolster home prices somewhat, and get more money flowing into the economy. But it still requires Congressional approval to work. And even then, we won’t see a housing recovery without meaningful economic improvement.