On October 24, 2011, the Obama administration rolled out a revamped program to help homeowners stave off foreclosures. This plan is for current borrowers who want to get a lower monthly payment through a lower mortgage rate. Proponents of the program say it would help boost the economy by relieving financial stress on homeowners and reducing their mortgage so that they would have more expendable money.
The new initiative, which involves removing barriers to homeowners qualifying for the Home Affordable Refinance Program (HARP), is the latest in a series of steps by the President to defend his mortgage relief efforts and promote his jobs and economic policies.
At its core, the latest initiative would allow homeowners to refinance regardless of how far their home has fallen in value. It scraps the current ceiling of 125% of a loan's current value. The Federal Housing Finance Agency (FHFA) also is extending the expiration date for HARP by 18 months, to December 31, 2013 for loans originally sold to Fannie Mae and Freddie Mac.
The plan would also eliminate certain risk-based fees for borrowers who refinance into shorter-term mortgages and would lower fees for other borrowers, which have been a significant deterrent for many homeowners.
HARP went into effect in the Spring of 2009, with the expectation of helping 4 million to 5 million troubled homeowners refinance their mortgages. HARP refinancing will still only be available to people who are current on their mortgage payments and who have had no more than one late payment in the last year. This plan allows homeowners to refinance their mortgages at lower rates. Borrowers can bypass the usual requirement of having at least 20% equity in their home. But few people have signed up. Many underwater borrowers — those who owe more than their homes are worth — couldn't qualify under the program. Roughly 22.5% of U.S. homeowners, about 11 million, are underwater, according to CoreLogic, a real estate data firm. As of August 31, fewer than 900,000 homeowners — and just 72,000 underwater homeowners — have refinanced through the administration's program.
Homeowners' eligibility under this program is not predicated upon the decline in home value. It should also be noted that some fees for closing, such as title insurance and loan processing will be eliminated making refinancing less expensive than normal. Banks are not required to purchase the mortgages from Fannie Mae or Freddie Mac, as they typically are required to do with risky type loans. This will allow many lenders to refinance, however a bank is not obligated to refinance even if a homeowner meets all of the requirements.
The Mortgage Bankers Association welcomed the Administration's changes to HARP but warned homeowners that the changes won't be implemented overnight. It could take several weeks for lenders to receive specific guidance and operational details to put the changes into practice.
However the question is, how many people will this new plan help? And will it be enough to jumpstart the still struggling housing market? This remains to be seen.
Lance T. Denha, of Denha & Associates, PLLC, works in the areas of business transactional law, foreclosure/pre-foreclosure workouts and bankruptcy law. In the business area, he specializes in general corporate law with a concentration in business and commercial transactions, property tax appeals, health care, and liquor licensing matters. In the foreclosure/pre-foreclosure workouts legal arena, Mr. Denha represents borrowers against lenders in seeking out residential loan workouts for purposes of avoiding foreclosure, or in the alternative, Mr. Denha will represent borrowers in foreclosure defense cases against lenders. Lastly, in the bankruptcy area, Mr. Denha’s focus is on bankruptcy law matters, specializing in debtor representation, creditor relations, and related litigation.
Mr. Denha is a member of the State Bar of Michigan and State Bar of Florida where he is licensed to practice law in Michigan and Florida.