Bloomberg News

U.S. Mortgage Plan Expands to Refinance Underwater Borrowers

November 04, 2011

Oct. 24 (Bloomberg) -- A U.S. government mortgage relief program will expand to allow homeowners to refinance regardless of how much their houses have dropped in value, the regulator overseeing Fannie Mae and Freddie Mac announced.

The Federal Housing Finance Agency also said it will eliminate certain fees and relieve banks of certain risks as part of the changes announced today to the Home Affordable Refinance Program, or HARP.

Previously the program was limited to borrowers whose mortgages were no greater than 125 percent of the value of their homes. To qualify, borrowers must be making on-time payments on their current loans. The program applies to loans owned or guaranteed by mortgage companies Fannie Mae or Freddie Mac, which were taken into government conservatorship in 2008.

“We believe these changes will make it easier for more people to refinance their mortgage,” FHFA Acting Director Edward J. DeMarco said. “This is not a mass-refinance program.”

Borrowers that stand to benefit from the change could be concentrated in states hard-hit by declining home prices, including Nevada and California. President Barack Obama plans to discuss the proposal later today in Las Vegas.

The HARP program was started three years ago with a goal of reaching 5 million borrowers. As of August, fewer than 895,000 borrowers have been helped. Those refinances could double by the end of 2013 under the expanded program, according to an FHFA projection.

The changes in the program should encourage more lenders to participate in HARP, DeMarco said. Lenders can’t be faulted for a bad appraisal, for example, because under the new program none are required, DeMarco said. Other exemptions from are being developed and will be released next month, he said.

‘Substantial Relief’

“This is substantial relief from representations and warranties,” DeMarco told reporters on a conference call today.

For borrowers to qualify for HARP, they must be making on- time payments on a mortgage originated before June 2009.

Risk-based fees will be eliminated for borrowers who refinance into 20-year or shorter loans, DeMarco said. The faster amortization of those loans lowers risk for Fannie Mae and Freddie Mac, which are government controlled and rely on taxpayer support to operate.

“Borrowers get above water much faster because of the amortization schedule,” DeMarco said.

--Editors: Lawrence Roberts, Gregory Mott

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.


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