Building on the moderate success of the HARP 2.0 Refinance Program introduced earlier this year, President Obama is again pushing Congress to expand and improve accessibility to historically low interest rates for more American families.
In February 2012 Congress shot down a proposal by the Administration to allow the early pay-off high interest rate loans that payments are being made on-time.
On May 11th, the White House released a statement that President Obama is again pushing Congress to consider expanding the under water refinance program to those home owners whose mortgages are not owned by fannie mae or freddie mac.
The President cites the activity around the current Home Affordable Refinance Program (HARP) as proof that the program works and will encourage more families to continue to make payments on their mortgage and stay in their home.
The plan proposed for Congressional action has three key components:
1. Remove the final barriers for borrower with GSE insured loans – There are two ways for a home owner to get a HARP refinance loan.
The “lender speak” description of the two ways is DU Refi, and DU Refi Plus. DU Refi is basically a manually underwritten loan file that only your current servicer will do. There are no income requirements, no appraisal, and bankruptcy can be ignored if refinancing using a DU Refi through your existing lender. The biggest problem with DU Refi is that the big banks are backed up for months and horribly inefficient or ineffective at delivering any semblance of customer service.
Any lender other than your current loan servicer must process a HARP refinance using DU Refi Plus, which is the automated computer decision that will tell you if you’re eligible or not. The challenge at this point is that while you can get approved to refinance under HARP if you are upside down, your credit history and income still must qualify. In many cases we are seeing the appraisal being waived, so at least there’s a silver lining there.
The President is proposing that all lenders be allowed to disregard the qualifying aspects of DU Refi Plus to make the program more widely available to more homeowners without being forced to wait in line and hope that their big bank will help them.
2. Provide simple, low-cost refinancing opportunities for non-GSE borrowers: Fannie Mae and Freddie Mac are considered Government Sponsored Entities (GSE).
The President is pushing for a streamlined DU Refi Plus type of option be available to home owners whose loans are not owned by Fannie Mae or Freddie Mac.
3. Giving Borrowers an Incentive to Rebuild Equity in their Homes: This option will pay borrower’s closing costs up to $3,000 for choosing to reduce the term of their loan to reduce the upside down principle balance faster. The example given is that borrowers can choose to take the lower payment of a reduced rate, or apply that savings to rebuild equity in their home by reducing the term of the loan from a 30 year, to a 20 year or shorter, keeping the payment the same as it is with the higher rate.
There are many challenges and hurdles to over come before Congress will even consider this proposal and many suspect that this is political posturing to earn votes in an election year.
We will keep a close eye on this story and let you know if it looks like it’s got legs.