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.”
Check out our other helpful videos to learn more about credit and residential mortgages.
Program Overview Borrower Contribution: You pay 1% of the purchase price as the down payment. Lender provides a 2% grant, bringing your total to 3% down, which is the typical minimum for conventional loans. For example, on a $250,000 home: You pay $2,500 (1%) Lender adds $5,000 (2%) You start owning 3% equity from day one Eligibility Requirements To qualify for ONE+, you must meet all of the following: Income: At or below 80% of your area's median income (AMI) National Mortgage Professional Credit Score: Minimum FICO® score of 620 Property Type: Must be a single-unit primary residence (no second homes or investments) Loan Limit: Loan amount must be $350,000 or l Total Down Payment: With their 2% grant included, your total down payment cannot exceed 5% Mortgage Insurance (PMI) Despite the grant taking you to 3% equity, the program does require mortgage insurance (PMI). National Mortgage Professional The Mortgage Report tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
A 40-year interest-only fixed for 10 years mortgage is a specialized loan product with the following structure: 🔹 Loan Term: 40 Years Total length of the mortgage is 40 years. 🔹 Interest-Only Period: First 10 Years For the first 10 years, the borrower only pays interest on the loan. No principal is paid down during this time (unless the borrower chooses to). Monthly payments are lower because they do not include principal repayment. 🔹 Fixed Interest Rate: First 10 Years The interest rate is fixed during the 10-year interest-only period. This provides payment stability during that time. 🔹 After 10 Years: Principal + Interest After the initial 10 years: The borrower starts making fully amortizing payments (principal + interest). These payments are higher, because: The principal is repaid over the remaining 30 years, not 40. And the interest rate may adjust, depending on loan terms (some convert to an adjustable rate, others stay fixed). ✅ Pros Lower payments early on—can help with cash flow. May be useful if the borrower plans to sell or refinance within 10 years. Good for investors or short-term homeownership plans. ⚠️ Cons No equity is built unless home appreciates or borrower pays extra. Big payment increase after 10 years. Can be risky if income doesn't rise, or if home value declines. 🧠 Example Let’s say: Loan amount: $300,000 Interest rate: 6% fixed for 10 years First 10 years: Only pay interest = $1,500/month After 10 years: Principal + interest on remaining $300,000 over 30 years = ~$1,798/month (assuming same rate) tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
When the 10-year Treasury yield goes down, it generally signals lower interest rates and increased demand for safe-haven assets like U.S. government bonds. Here’s what typically happens across different areas of the economy and markets: 🔻 Why the 10-Year Treasury Yield Drops Increased demand for bonds: Investors buy Treasuries during uncertain times (e.g., recession fears, geopolitical risk), which drives prices up and yields down. Expectations of lower inflation or interest rates: If the Federal Reserve is expected to cut rates or inflation is cooling, yields tend to fall. Weak economic outlook: Slowing growth or a poor jobs report can trigger a yield decline. 📉 Impacts of a Lower 10-Year Treasury Yield 🏦 1. Mortgage Rates and Loans Mortgage rates (especially 30-year fixed) tend to follow the 10-year Treasury. As yields fall, mortgage rates usually decline, making home loans cheaper. This can stimulate the housing market and refinancing activity. 📈 2. Stock Market Lower yields often boost stock prices, especially growth stocks (like tech), because: Borrowing costs are lower. Future earnings are worth more when discounted at a lower rate. Defensive and interest-sensitive sectors (like utilities and real estate) also benefit. 💰 3. Consumer and Business Borrowing Lower Treasury yields can lead to lower interest rates across the board, including for: Auto loans Credit cards Business loans This can boost consumer spending and business investment. 💵 4. U.S. Dollar Falling yields can make U.S. assets less attractive to foreign investors. This can weaken the dollar, which may help U.S. exporters by making goods cheaper abroad. 🪙 5. Inflation Expectations If the yield is falling due to low inflation expectations, it may indicate deflationary pressure. However, if it's just due to safe-haven buying, it might not reflect inflation at all. ⚠️ Potential Risks A sharp drop in the 10-year yield can signal a recession or loss of confidence in the economy. A flattening or inverted yield curve (when short-term rates are higher than long-term) can be a recession warning. tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
