Obama Administration Considers Expanding Home Affordable Refinance Program
Editor’s note: On October 24, 2011, the FHFA announced changes to HARP that remove the 125% LTV restriction for fixed-rate loans. See the Bills.com resource HARP Mortgage to learn about the loosened requirements.
Obama Administration officials are floating an idea to some media outlets that it may expand or change the Home Affordable Refinance Program (HARP) to allow homeowners with government-backed mortgages to refinance them at current interest rates, which hover at about 4% today.
Currently, the number of home refinances in the works are relatively low, which is perplexing to some mortgage refinance providers given the rock-bottom interest rates available. The low number of refinances may be due to homeowners owing more on their home loans than the properties are currently worth, or because of less-than-perfect credit scores.
A fresh wave of refinancing could boost the economy by slashing consumer mortgage payments and allow them to spend on other goods and services. A change to the HARP qualifications would likely be opposed by investors in mortgage bonds.
However, the losses in income may be offset by a decrease in the number of defaults and foreclosures. A large-scale refinance would spread the benefits of low interest rates to more people. As of July, an estimated $2.4 trillion in mortgages backed by Fannie and Freddie carried interest rates of 4.5% or higher, according to the Federal Reserve. American homeowners owe $700 billion more than their homes are worth.
HARP allows homeowners to refinance their existing mortgages to current low interest rates. It is designed for homeowners who are current on their mortgage payments but are unable to refinance to a lower interest rate because their home values have decreased.
Homeowners may be eligible if their first mortgage does not exceed 125% of the current market value of the home. One proposal the Obama Administration is reportedly discussing is to raise the 125% limit to allow more homeowners to qualify.