Photo: http://www.thetruthaboutmortgage.com/how-does-refinancing-work/
It may be hard to believe, but real estate news these days isn’t all bad. Take, for example, the news that mortgage refinancing may soon get a lot easier for those whose homes are underwater.
In an article written yesterday, SFGate (the online home of the San Francisco Chronicle) reported that the President and other politicians are pressuring Washington to come up with an expansive refi plan that will help relieve homeowners who find that they owe more than their home is worth. Many lenders won’t allow this type of homeowner to refinance, since they are seen as “too risky” because “there is not enough collateral if the homeowner defaults”.
However, if these homeowners were allowed to refinance out of their high-interest mortgages into ones with lower rates, it would provide them with extra cash every month that could go towards recreation or other expenses. As Fif Ghobadian, a broker at Guarantee Mortgage in San Francisco, puts it, if mortgage refinancing were available to those underwater:
“A huge floodgate would open up … It would provide the help that lowering interest rates cannot do alone. Someone who’s been making payments at 7.5 percent religiously but cannot qualify to refi – boy, would that 4 percent make a huge difference in their life.”
It certainly would make a difference to the 250,000 homeowners in the Bay Area alone who found themselves underwater in the second quarter of 2011.
Currently, a 2-year-old program called HARP (the Home Affordable Refinance Program) exists to help lenders refinance some Fannie- and Freddie-backed underwater mortgages and may prove to be the base of more extensive legislation. HARP has only helped facilitate around 800,000 refis since its creation (nowhere close to the original target of 5 million) due to lenders reasonably being afraid of buybacks. Changes made to HARP should allow for mortgages that are more viable to lenders and more readily available to a wider variety of consumers.
These new mortgages may include certain restrictions in order to qualify (i.e. you can’t owe double the worth of your house, you can’t have dinged credit or insufficient income, you have to be current on payments, you have to have a mortgage that’s held by a large government entity like Fannie or Freddie, etc.) and there may be roadblocks in the way of this new legislation (i.e. the still-present fear of buybacks and large institutional investors — American taxpayers, foreign investors, commercial banks, public and private pension funds, and mutual funds — who own mortgage-backed securities though Fannie and Freddie, who might stand to lose as much as $4.5 billion should this legislation pass).
All in all, we’ll just have to wait and see how it all turns out.
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Stephanie Huskey is the resident real estate blogger for Movoto and is torn about this issue. Law-abiding people deserve fair treatment, but should they get it at the financial expense of other hardworking people? (Comment and let us know!) Interested in getting her advice on your blog? She’s currently seeking guest blogging opportunities so she can share her knowledge with new communities! You can find her over here at Elance.com.
