How easy would it be to launch the initiative to help underwater home owners that President Barack Obama talked about in his state of the union speech on January 24?
Policy experts speaking with politically active REALTORS® in Washington this week said it would be relatively easy to create the program if an agency like FHA or even if the two secondary mortgage market companies Fannie Mae and Freddie Mac were given responsibility to do it. As policy consultant and former HUD official Brian Chappelle put it, the program could be implemented “almost overnight” because FHA already has its lenders and refi procedures in place.
But Chappelle and others said if FHA or the GSEs undertook the program, it would be best for the government to create a separate insurance fund to cover the new refinanced mortgages. That way, the entities’ main insurance funds wouldn’t be at risk should a portion of the loans go bad.
Brian Gardner, a Wall Street analyst, said the program would require close coordination with the Federal Reserve, otherwise investors in mortgage backed securities would demand a risk premium in interest rates to account for future political uncertainty of the program.
Patrick Swire, a former Obama administration domestic policy advisor and now an analyst with the Center for American Progress, said Obama’s refi initiative is a logical extension of the administration’s previous efforts to help underwater home owners since the economic crisis hit several years ago. The Home Affordable Refinance Program (HARP) was a first attempt to give lenders, investors, and troubled borrowers an incentive to modify their mortgage before the house is lost to foreclosure. This new program would provide an opportunity to implement lessons learned from that earlier effort.
Would lenders even want to participate? Ann Schnare, a policy consultant who formerly was an executive with Freddie Mac, said lenders are worried about getting hit with loan repurchase penalties, which previously happened infrequently but since the mortgage market upheaval have become far more common. So, unless that issue is addressed, lenders would likely be worried about the risks of participating.
Of course, whether the program will even pass Congress is another matter altogether, and that remains the big question. But the panelists appeared to agree that implementation was clear-cut should it pass.
Under the refi initiative President Obama discussed in his speech, underwater home owners who are struggling to stay current on their mortgage would be able to refinance to take advantage of today’s historically low rates.
The video excerpt above shows the discussion, Wednesday, Jan. 26, among the panelists. At about eight minutes, the video is relatively long, but the discussion is substantive and interesting, so it’s worth the investment in time to watch if you’re interested in these policy issues. Session moderator is Alan Zibel of the Wall Street Journal/ Dow Jones News Wire.