Obama Refi Plan Would Help Non-GSE-Backed Borrowers

President Barack Obama today fleshed out a proposal he announced in his State of the Union speech last week to help boost the housing market by helping more underwater home owners than are being served now by lenders.

In the details he released today, the President said he wants to make the federal government’s existing mortgage refinance program, called HARP (Home Affordable Refinance Program) available to more home owners. It’s currently available to struggling borrowers with loans backed by Fannie Mae and Freddie Mac. For these borrowers, incentives are provided under certain conditions to make refinancing more attractive.

Proposal details

Under the new proposal, this HARP program would be expanded to include borrowers with loans that aren’t backed by Fannie and Freddie. These are the borrowers whose loans were securitized in private-label securities without any federal backing, and they would be allowed to refinance into FHA-backed loans, the same as the Fannie and Freddie borrowers. The administration has estimated that borrowers would save $3,000 a year in mortgage costs.

Key points: 1) More underwater home owners would be able to tap federal refinance assistance than can do so today, 2) mortgage servicers would be restricted in their ability to foreclose until after they’ve exhausted efforts for borrowers who’ve make a good-faith effort to modify their mortgage, and 3) efforts to reduce the inventory of foreclosed homes through bulk sales to investors for use as rental housing would be tried in a pilot program.

To be eligible, borrowers would have to have made their mortgage payments over the last six months with only one delinquency, and their loan amount couldn’t exceed the FHA loan limit for their area. If borrowers owe more than 140 percent of the value of their home, the lender has to agree to reduce the loan balance. Also, borrowers wouldn’t have to submit a full file of paperwork for the refinancing as long as they can verify their employment. The proposal also would enable borrowers who still have equity in their home—up to 20 percent—to participate.

The changes will require legislation, so Congress will have to agree to them for the expanded program to take effect.

In his State of the Union speech last week, Obama said he would pay for the expanded program using a fee charged to the country’s largest banks so the initiative wouldn’t add to the deficit. But some members of Congress have said they oppose charging banks a fee to cover the cost.

The Obama plan would also introduce a Bill of Rights for home owners, part of which is intended to smooth the mortgage modification and foreclosure processes, which today can be contentious and difficult for borrowers to understand. A key part of this is an effort to curb banks’ practice of undertaking a mortgage modification while at the same time proceeding with a foreclosure—a process called dual tracking. Before they can start foreclosure, banks will have to show they took all reasonable steps to modify a borrower’s mortgage.

To help ease inventories of foreclosed homes, the plan would give a green light to Fannie Mae to implement a pilot program to make foreclosures available to investors in bulk purchases for conversion to rental housing. Under the pilot, Fannie would package for sale foreclosed homes in a limited number of markets and require them to be used as rental properties for a period of time.

NAR has concerns with this proposal and has been talking with federal regulators to ensure that the program is carefully tailored to the communities who can truly benefit from it, that small- and medium-sized investors be able to participate, and that real estate professionals continue to play a role in the disposition of the homes.

In a statement released after the President outlined the details of his proposal, NAR said it’s urging the regulator of Fannie and Freddie, the Federal Housing Finance Agency, “to proceed cautiously with the REO-to-rental program since housing markets are complex and varied.

“NAR believes an overly aggressive REO-to-rental program that is not privately administered by local entities and does not involve substantial participation of local market experts, especially licensed real estate professionals, could be disruptive and counterproductive to communities already suffering from high foreclosure inventories and lower housing values.”

More on Obama’s proposal.

Analysis on implementation of the proposal.

Watch the full speech on C-SPAN.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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  1. This will be another example of a failed program. This program might save one or two families $200 a year in their mortgage plan. Another attempt for Obama to fool Americans that he is doing good for the country. People need deep modifications and build the amount due back into the loan for when they get back on their feet in a few years but again that will most likely delay the inevitable. Let the market play out so we can get through the pain faster.

  2. Geena, Let the market play out, let the market play out is such a stupid battle cry. What does that even mean? Just keep the government out? The government has done a lot of good in times trouble. The banks, a major contributor to the problem we have, along with the WS brokers, AIG, Fannie, Freddie and the regulators, are controlling the foreclosures by not foreclosing until they can schedule them trying to affect the market. That is not letting the market play out. If they did put all the foreclosures on the market it would be a disaster and tank the market.

    So you know the future? This is a failed program? You have to try something before it can fail.

    Really? The plan would help 2 families save $200???? NONSENSE

    We need to keep people in their homes not toss them into the street. Many Many people could stay in their homes if their mortgage principle is reduced so their home is not underwater and their interest rate is brought to current rates.

    Let’s work to keep people in their homes.

  3. Michael

    One glaring aspect of this program tells you everything you need to know about it – no appraisal is required. That’s right – the government doesn’t care how much your house is worth, you just get a “pass” on part of what you owe on the home. Take it this way – the TV I bought on my Visa credit card isn’t worth what it was 2 years ago because it’s not a 3D TV. By this logic, there should be a federal program so I only have to pay back $400 instead of $1,500 to my visa card because I’m “underwater” on my TV. Sounds silly, doesn’t it? Owning a home is not a “right” – it’s a financial decision with RISK that you CHOOSE to risk your money into. Sometimes you LOSE- that’s why you don’t sign your name to a mortgage for 95% of a home’s value- DUH. What about the country’s 75,000+ real estate appraisers who, rather than being able to provide a valuable service and keep the banks and lenders honest, are going to go out of business because no one will be using their services on refinances anymore? Is Obama going to bail them out?

  4. Tom,
    You are right, I remember many years ago in Long Island New york, we had a lot of foreclosed properties, and double digit interest. The towns had an incentives. Interest free loans to repair homes(Most homes were guttered) Requirement was that You had to live in the home 7 years, and it was yours. It definately worked, now these same properties are worth small fortunes. The values are up, and they are Beautiful neighborhoods. I think the mind set that we should ride it out? and where the chips fall? I understand some people feel that it is a free ride for freeloaders? They are angry, and they have a right to be, However, if anyone is at fault it is the Banks, taking taxpayers monies, and paying Bonuses? Isn’t a Bonus suppose to be a reward for a good job?
    A lot of homes that were foreclosed, were done illegally, and I am glad that we have a president who is willing to go past all the blame game, and try to make somethng positive out of this mess.
    Michael, you are right on what you are saying, however before recently there was not a true disclosure that was mandatory from the lenders, and when people had gotten loans, they did not know what they were purchasing. A buyer would go to a lender, they thought was there friend, and because it was not clearly explained would get in over there head. I have done a lot of short sales for some great people, that simply did not understand, they were to trust worthy. This plan may not be 100% right, but it is a start.

  5. I cannot understand why so many people are so anxious for those who made a bad decision when financing their homes to be punished. I can guarantee you that if the Realtors and the lenders who were involved in these purchases and loans had explained these loans in detail and stressed the risk they were taking we wouldn’t be in the state we are.

    Greed is the basis of most evil and yes, Realtors too are quilty of Greed. I would have walked away from a sale before I put a buyer in some of these loans. I have to sleep at night. To my knowledge not one of our buyers got one of these loans and it did not hurt our sales.
    It hurts to see Realtors who have a Code of Ethics so ready to punish their fellow man for being ignorant of the facts. We Realtors should have made sure that buyers knew exactly what their payments were going to be when they rolled to a higher interest and what their risk was if property values went down. Look at the history of property values and you will see peeks and valleys from the beginning of time. Nothing stays the same.

    Let’s start thinking of our fellow man. Many people need help thru no fault of their own. Sure there will be some abuses but the good far out weighs the bad.

  6. Peggy Wisniewski

    I am a home owner who owes more than the property is worth at this time and banks won’t refi because we are not backed by Fannie and Freddie. We need to sell but can’t due to this situation. Buyers don’t want to pay more then it is worth (which was 100 grand higher a few yrs back) and banks won’t loan to them. My husband and I have had our pay cut for the last several years and feel this new proposal would be of great help to a lot of people. Please push forward with you plans to expand the HAPR program. Thank you from CA

  7. Graham Wood

    Yes we use WordPress, though the amount of HTML coding we need to use is minimal.