Feds expand help for homeowners

This post comes from Marilyn Lewis at MSN Money.

The Obama administration today significantly revamped its government-sponsored​mortgage-refinancing​ program, changes it expects could allow 800,000 to 1 million more underwater homeowners to rewrite their home loans at current low interest rates, reducing their monthly payments.

Last week the average rate paid for a fixed-rate 30-year mortgage was 4.11%, and the increasingly popular 15-year loan was averaging 3.38%. Post continues after video.

"The plan is the latest White House effort to deal with one of the most critical impediments to economic recovery -- a stagnant housing market caused in part by a surfeit of homeowners who are unable to refinance," writes The Wall Street Journal.

Easier refinancing for underwater homeowners won't solve all the country's housing problems, but it could help a lot, the Journal says.

Home prices, on average, stand at 2003 levels -- a loss of about 31% since their 2007 peak, according to the S&P/Case-Shiller Home Price Index. "The housing market is still bottoming and has not turned around," the last Case-Shiller report said. (Another is due out Tuesday.)

Shut out from refinancing

Many people who would refinance cannot because a loss in their home's value has left them with no equity or with negative equity, meaning they owe more than the home is worth.

Typically, to refinance with a mortgage lender -- if you can meet all the other stringent demands -- you must have at least 20% equity in the home.

However, the government's refinancing assistance program, the Home Affordable Refinance Program launched two years ago, has been refinancing mortgages for borrowers with less than 20% equity.

But until now, there was a limit: You could refinance only if you owed 125% of your home's value or less. For example, you could qualify if your home was worth $100,000 (having dropped from your purchase price) and you owed $125,000. But if you owed more than $125,000 on the home, you wouldn't be eligible for HARP refinancing. 

And HARP's the only game in town for an underwater borrower. Banks and other mortgage lenders typically won't refinance an underwater mortgage.

"Today, a quarter of U.S. homeowners are 'underwater,' owing more than their homes are worth," says The Washington Post in this slideshow recapping administration programs and efforts since 2009 to address the housing crisis.

But just 894,000 homeowners have been able to get a HARP refinance and only 70,000 of those were seriously underwater, the Journal says.

Equity requirement eliminated

With today's changes -- which President Obama is expected to discuss in a speech in Las Vegas today -- any underwater borrower, no matter how deeply underwater, could apply for a HARP refinance. Borrowers who're behind on home payments, however, would not qualify. You have to have made timely payments for the last six months.

"That could open up refinancing to legions of borrowers in Nevada, Arizona, Florida, California and elsewhere who are paying high interest rates and are deeply 'underwater,'" says the Journal.

A catch: To participate in HARP, your mortgage has to be a "conforming" one, guaranteed by Freddie Mac or Fannie Mae. Those are mostly fixed-rate mortgages given to homeowners based on relatively conservative lending standards. Subprime or Alt-A mortgages would not qualify.

But a lot of other mortgages would qualify, since between them, Fannie and Freddie, the giant government-run mortgage corporations, "guarantee roughly half of the nation's $10.4 trillion in home loans outstanding," according to the Journal.

Freddie Mac and Fannie Mae, along with the Federal Housing Administration, "now guarantee about 90% of all new mortgages," says The New York Times.

Other changes

Today's revamping of HARP includes other changes, outlined here in a press release (.pdf file) by the Federal Housing Finance Agency, which regulates Fannie and Freddie.

Fees are reduced. And, for borrowers who choose to shorten the term of their loan, there will be no fees to refinance.

"Borrowers who owe more on their house than the house is worth will be able to reduce the balance owed much faster if they take advantage of today's low interest rates by shortening the term of their mortgage," says the FHFA document.

"Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets," said Edward J. DeMarco, acting director of the FHFA.

Adds the Journal:

The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments, according to administration officials and an official at the Federal Housing Finance Agency.

And there's more fine print, the paper explains:

Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as Dec. 1, according to federal officials. Loans that exceed the current limit of 125% of the property's value won't be able to participate until early next year. The program's expiration date, originally next June, will be extended through 2013. HARP is only open to loans that Fannie and Freddie guaranteed as of June 2009.

More on MSN Money:

• Calculator:How much house can you afford?
• Weird stuff that hurts home values
• Are you foolish to pay your mortgage?
• 'Savvy' borrowers abandoning homes
• Calculator:Should I refinance?
• Should you rent or buy?