The top housing-finance regulator in the country is moving to revamp a federal program that allows more people to refinance their mortgages at the low rates we see today. The move has the backing of the Obama administration.
The FHFA is rolling out a new program that will allow homeowners to refinance at today’s interest rates.
Currently under consideration are changes to an initiative that Washington unveiled more than two years ago for loans guaranteed by Fannie and Freddie. The administration made it clear, however, that it is not considering a massive new refinance initiative for high-rate loans, which have caused a disturbance in mortgage-bond markets as of late.
The Federal Housing Finance Agency must approve any changes to the program, which it states it is looking to improve on and will support the reforms needed to make that possible. The initiative currently in place is called the Home Affordable Refinance Program (HARP); it allows borrowers whose loans are worth between 80 to 125% of their home’s value to refinance without the need to put down more cash or even to take out additional mortgage insurance. These costly steps can often outweigh the savings from refinancing.
Although it was conceived of as a program that would help borrowers who are current on their mortgages to take advantage of low rates, it has been bogged down by a laundry list of unforeseen hurdles. The administration is not happy with the number of families that have been aided by the program. It is felt that greater potential lies within the program.
To be successful, any changes to HARP need to ease banks’ concerns over the risk that they will have to repurchase refinanced loans that default in the end. This is a major concern for banks that have been reluctant to refinance the riskier borrower at the risking of having to buy-back a loan that defaults.