President Obama's Mortgage Refinance Plan
DDA Mortgage • November 2, 2011
Mortgage refi plan targets hard-hit borrowers
By Steve Goldstein, MarketWatch
WASHINGTON (MarketWatch) — President Barack Obama on Monday unveiled a changed mortgage refinance plan that would allow homeowners who have suffered steep price declines on their properties to get cheaper loans.
The Home Affordable Refinance Program, the only program specifically designed for owners whose mortgages are worth more than the value of their homes, is being changed so that more Fannie Mae- or Freddie Mac-guaranteed mortgages could be refinanced. Use external link to see if Fannie Mae has guaranteed your mortgage. Use external link to see if Freddie Mac has guaranteed your mortgage.
With house prices nationally roughly a third below their peak, there are millions of borrowers who will potentially be eligible to refinance into mortgages near record lows — the 30-year carried an interest rate of 4.11% last week — rather than the mere 894,000 borrowers who have used the program so far.
“These are important steps that will help more homeowners refinance at lower rates, save consumers money and help get folks spending again,” Obama is due to tell an audience in Las Vegas, the city with the highest foreclosure rate in the country. Nevada is the only state which cumulatively is underwater on mortgages.
The new plan does have its limitations: it will require homeowners to be current on their payments and it’s only for loans sold to Fannie or Freddie by May 31, 2009. And of course, not all loans are backed by the housing giants, though state attorneys-general are separately negotiating a settlement with the nation’s top lenders that may include an element of mortgage modification.
“Given the magnitude of the housing bubble, and the huge inventory of unsold homes in places like Nevada, it will take time to solve these challenges,” Obama admitted, according to prepared remarks.
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The Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, estimates that refinancing could double under the program. Even so, the program would go only a small way in addressing the roughly 11 million homeowners who are underwater.
To spark interest in HARP, the program will lower fees, eliminate the current 125% loan-to-value ceiling, waive lender warranties and eliminate the need for property appraisals.
White House officials say the refinancing could save owners about $2,500 each year.
Gene Sperling, the director of the National Economic Council, said the key element of the plan is the removal of reps and warranties. “Removing reps and warranties has the potential to unleash competition for housing refinance,” Sperling told reporters on a call.
The industry embraced the initiative.
“Lenders are particularly gratified that the refinements will provide relief from some representations and warranties that lenders face when originating new loans,” said David Stevens, president and chief executive of the Mortgage Bankers Association. “These changes alone should encourage lenders to more actively participate in HARP.”
He cautioned that “it will take a bit of additional time” even after FHFA guidelines are introduced in November to implement them.
Politically, the plan is the start of a once-a-week effort to show the Obama administration can get things done even when legislative efforts are blocked in Congress, according to the New York Times.
For the economy as a whole, the program is seen having only a limited impact.
Yelena Shulyatyeva, an economist at BNP Paribas, calculates that the program could leave to savings on the order of $2.75 billion — or 0.02% of annual disposable income.
“While the households that benefit will see an increase in disposable income of as much as 5% as a result of lower mortgage payments, in the aggregate, the direct impact is not material from a macroeconomic point of view,” she said in a note to clients.
“This would hold even if the program is more successful than the FHFA anticipates. Nevertheless, indirect benefits of the plan include further lowering delinquency rates and alleviating bank losses to a modest degree.”
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Is Refinancing Right for You? Unlocking Cash & Financial Freedom Feeling squeezed? Juggling multiple debts with varying interest rates? Dreaming of that kitchen remodel you've been putting off? Or maybe you just need a little extra breathing room in your monthly budget? You're not alone. Many homeowners find themselves in situations where they need access to cash, and for a significant portion of them, the answer is refinancing their mortgage. In fact, last year, a whopping 40% of all mortgage activity was refinances! But what exactly is driving this trend, and could refinancing be the right move for you ? Refinancing to Unlock Cash: Home Improvements, Debt Consolidation, and More One of the primary drivers behind the refinance boom is the desire to tap into home equity. Your home is likely your largest asset, and as you pay down your mortgage and your property value increases, you build equity. A cash-out refinance allows you to borrow against that equity, receiving the difference in cash at closing. Home Renovations and Upgrades Imagine finally getting that dream kitchen! Or adding a much-needed bathroom. Home improvements not only enhance your living space, but they can also significantly increase your home's value. Instead of relying on high-interest credit cards or personal loans, a cash-out refinance provides a more affordable way to finance these projects. Debt Consolidation: Streamline Your Finances Are you overwhelmed by multiple credit card bills, student loans, or other high-interest debts? A cash-out refinance can be a powerful tool for debt consolidation. By using the cash from your refinance to pay off these debts, you can simplify your finances, potentially lower your overall interest rate, and reduce your monthly payments. This can free up cash flow and make it easier to manage your finances. Unexpected Expenses and Opportunities Life throws curveballs. Unexpected medical bills, job loss, or even a fantastic investment opportunity can create a need for immediate cash. A cash-out refinance can provide a financial safety net, allowing you to address these situations without resorting to high-interest options. Beyond Lower Rates: Other Reasons to Refinance While a lower interest rate is often the primary motivation for refinancing, it's important to recognize that it's not the only reason homeowners choose to refinance. Many factors contribute to the decision, and sometimes, a lower rate isn't even the main goal. Switching Loan Types: From ARM to Fixed-Rate Adjustable-rate mortgages (ARMs) can be attractive with their initially lower interest rates. However, as the name suggests, the rate can adjust over time, potentially leading to higher monthly payments. Refinancing from an ARM to a fixed-rate mortgage provides peace of mind by locking in a stable interest rate for the life of the loan. This can be especially appealing in a rising interest rate environment. Shortening Your Loan Term Refinancing to a shorter loan term, such as from a 30-year mortgage to a 15-year mortgage, can save you a significant amount of money in interest over the life of the loan. While your monthly payments will likely be higher, you'll pay off your mortgage much faster and build equity more quickly. This is a great option for homeowners who are financially secure and want to accelerate their path to homeownership. Removing Private Mortgage Insurance (PMI) If you initially put down less than 20% when you purchased your home, you're likely paying private mortgage insurance (PMI). PMI protects the lender in case you default on your loan. However, once you've built up enough equity in your home (typically 20%), you can request to have PMI removed. Refinancing can be a way to get a new appraisal and demonstrate that you've reached the required equity threshold, allowing you to eliminate this extra monthly expense. You can reach out to us through our contact page to learn more about your specific scenario. The Rise of Cash-Out Refinancing: A 2023 Trend As we mentioned earlier, a substantial portion of 2023 refinance volume was cash-out refinancing. This indicates a shift in homeowner priorities. While securing lower interest rates remains important, the need for accessing equity for various financial needs is becoming increasingly prevalent. Economic Factors Influencing Refinance Decisions Several economic factors contribute to the popularity of cash-out refinancing. Rising home values have created more equity for homeowners to tap into. Additionally, inflation and rising costs of living are putting pressure on household budgets, making debt consolidation and access to cash more appealing. Economic uncertainly may lead homeowners to consolidate their debts and protect against future economic shock. Weighing the Pros and Cons: Is Cash-Out Refinancing Right for You? While cash-out refinancing can be a valuable tool, it's crucial to carefully consider the pros and cons before making a decision. On the positive side, it can provide access to cash for important needs, consolidate debt, and potentially lower your overall interest rate. However, it also means taking on a larger mortgage, potentially extending your loan term, and paying closing costs. A recent [Housing Wire article]( "") discussed the importance of working with an expert to determine what option is best for each homeowner. Important Considerations Before You Refinance Assess Your Financial Situation: Carefully evaluate your current debt obligations, income, and expenses. Compare Interest Rates and Fees: Shop around for the best refinance rates and terms. Don't just focus on the interest rate; consider all associated fees. Calculate the Break-Even Point: Determine how long it will take to recoup the closing costs associated with refinancing. Understand the Tax Implications: Consult with a tax advisor to understand any potential tax implications of refinancing. Does Refinancing Make Sense to Consolidate Debt? Let's Talk! Refinancing can be a powerful tool for achieving your financial goals, whether it's consolidating debt, funding home improvements, or simply gaining more financial flexibility. But it's not a one-size-fits-all solution. That's why it's essential to work with a trusted mortgage professional who can assess your individual needs and help you determine if refinancing is the right choice for you. At DDA Mortgage, we're committed to providing personalized guidance and helping you navigate the complexities of the mortgage process. If you're considering refinancing, we encourage you to contact us today for a free consultation. Let us help you explore your options and find the best solution for your unique situation. Check out our Refinancing page to learn more, and then reach out to one of our team members! Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult with a qualified financial advisor before making any financial decisions. Interest rates and loan terms are subject to change without notice.
