Obama Administration Rolls Out New Refinancing Rules
New rules announced Monday by federal regulators will speed up refinancing for people who owe on their mortgages than their houses are worth, the latest move by President Barack Obama’s administration to stabilize the housing market.
The housing market is still one of the primary factors keeping the U.S. economy at a standstill years after the crash in home values put millions of American families “underwater” on their mortgages. Over 11 million people owe more on their home loans than their homes are worth, according to recent reports, which puts an enormous drag on consumer spending.
The changes to refinancing rules announced by the Federal Housing Finance Agency, along with government sponsored mortgage lenders Freddie Mac and Fannie Mae, are supposed to provide some relief for qualified borrowers stuck with hefty monthly payments.
First, problems in the housing market are a serious impediment to a stronger economic recovery. Residential construction—which typically boosts economic activity during a recovery—is at a standstill. Moreover, many homeowners are now consuming less because the decline in house prices reduced their wealth and they are concerned that the decline in home values and wealth may not be over.
Mortgage rates are at record lows and house prices no longer appear overvalued on affordability measures. But obstacles to refinancing and access to credit for home purchases are limiting the support provided by low rates to house prices and consumption. Meanwhile, the large supply of foreclosed homes for sale—and the prospect that unemployment and negative equity will continue to feed the foreclosure pipeline—continues to put downward pressure on home values. The risk of further house price declines in turn discourages would-be buyers from entering the market.
Among other things, the new rules would lift the requirement under the Housing Affordable Refinance Program (HARP) that borrowers owe no more than 125 percent of their home’s value early next year.
But “qualified” is the key word. There is much dispute over how many borrowers the program would help. Up to 1 million borrowers could now qualify for refinancing, which would put a sizable chunk of money back in their pockets each month, according to the Wall Street Journal. But that accounts for less than 10 percent of borrowers who are in trouble.
Since its inception in April 2011, HARP has helped only 894,000 people refinance.
E.D. Kain of Forbes writes that making modest waves in the housing market is actually a good move:
Although a fairly modest attempt to staunch the bleeding in the housing market, it’s a decent plan largely due to its modesty. The administration’s plan helps struggling home owners without attempting to artificially stabilize home prices – and the last thing anyone should be trying to do is try to “fix” home prices, however painful the loss of value in the housing market may be.
The Obama administration will not seek the approval of Congress to get the new rules in place, according to reports, in hopes of avoiding the political jockeying that has prevented the advance of the President’s $447 billion jobs package.
The President will announce the changes and push components of the jobs bill in Nevada, which has the highest foreclosure rates in the U.S. One in every 118 homes was in a state of foreclosure in August, according to Realty Trac.