President Obama is rolling out a new program to make it easier for underwater homeowners to refinance their loans.
The FHFA’s new rules slash fees for borrowers looking to refinance. And while in the past only borrowers who owed up to 25 percent more than their properties were worth could take part in the program, now there will be no cap on how much a borrower can owe.
Only loans that are guaranteed by Fannie Mae and Freddie Mac will be eligible. Borrowers must check with their lender or Fannie or Freddie to see whether they are eligible. Borrowers also must be current on their mortgage and not have made a late payment in the past 12 months.
The take away is that this might make it easier or less expensive to refinance an underwater mortgage, which should allow people repaying the mortgage to pay a lower amount per month. Assuming you can get your bank to allow you to refinance your house, there’s an open question of just how much this will reduce your monthly payments:
But the program might not have a major impact on the economy. There are about 11 million underwater borrowers in the country. And under an illustrative example provided by FHFA, borrowers might reduce their payments by just $26 per month; the Obama administration is touting savings of up to $200 per month. It will depend on the fees charged to borrowers for taking part in the program.
Is this a good thing? It’s probably better than not doing this, but I don’t see how it addresses the underlying crisis. If you’re underwater in your mortgage, refinancing might let you pay less per month, but you’d still be underwater. I suppose that refinancing, should people qualify and get their banks to go along with it, might give you a little bit more money each month which could act as a tepid economic stimulus, but it’s a very roundabout way of getting there. As we’ve seen, individual homeowners might be better served by walking away from an underwater mortgage rather than finding a way to stick with it.
What this doesn’t address is that banks sold bad mortgages to people then sold those bad mortgages to investors and retirement funds using fraudulent practices and ratings. Now borrowers owe more than their homes are worth, and people who thought they were buying AAA rated investments are holding crap paper. We’re still letting the borrowers, the 99%, absorb the lost value from the housing bubble that Wall Street created and we gave trillions of dollars to Wall Street to try to cover the bad paper and got nothing in return. If the President were serious about addressing the problem, he’d push for legislation that makes the banks absorb the loss and lower the principals ordinary people owe on their houses.
This is the standard line for the Obama administration. They do some marginal “good” on the margins, but their policies still protect the gains of the 1%, leaving the rest of us to pay for their fraud.
