OP-ED: Refinance relief for the middle class
By Jackie Speier
San Mateo Daily Journal
Is your home worth less than what you owe? If so, new government rules may give you the chance to lower your monthly payments.
Specifically, mortgages originally sold to Fannie Mae or Freddie Mac prior to May 31, 2009, with only one late payment in the last year-none within the last six months-may be eligible for refinancing regardless of how far underwater the borrower may be. Complete information can be obtained by visiting www.fhfa.gov (go to Home Affordable Refinance Program).
Although Fannie and Freddie have collectively helped nine million borrowers refinance since April of 2009, only 10 percent of these borrowers were “underwater,” meaning their mortgage was larger than the value of their home. Strict limits on the loan-to-value ratio depressed the level of refinancing. Now, these limits have been removed.
In the past, efforts to support refinancing have fallen woefully short of what was needed. Will it really work this time? That’s the question most frustrated homeowners are asking.
It should work because this new program is a dramatic departure from prior rules, offering relief to all underwater borrowers. Also, as a practical matter, you had to refinance through your existing lender under the old program. Under the new program, you can use any participating lender. Banks get paid for every loan that they service so they have an enormous incentive to keep their existing customers by refinancing under the new rules.
While experts certainly dispute the scale of those possibly helped, one expert I consulted has indicated that many millions of Americans will now be eligible and are likely to refinance. Others say only 1 million will qualify, but even at that level it’s twice the number helped to date. Because the numbers are potentially so large, and banks need to gear up, it is expected that most banks will begin to process applications for refinancing under these new rules by the first quarter of 2012.
Some may ask if offering refinancing to these underwater homeowners is prudent. It is.
First, Fannie and Freddie already own or guarantee payment on millions of these underwater loans. By cutting the monthly payments, the odds improve that a homeowner will meet his or her obligations and this reduces the odds that Fannie and Freddie will have to make good on their guarantees. Since Fannie and Freddie are owned by taxpayers, this reduces the likelihood that taxpayers will have to pay for defaulted mortgages.
Second, refinancing a mortgage makes it less likely that a homeowner will go into foreclosure. This means fewer homes coming onto the market at distressed prices, and stronger property values throughout a neighborhood.
Third, homes that are current on their payments but stretched thin by high interest rates will be freed from these large payments. This will free these homeowners to spend on other needs, such as clothing, cars or new appliances, pumping hundreds of millions of dollars into the economy which, in turn, leads to more job creation.
Thankfully, this initiative by Fannie and Freddie is pretty straightforward. Also, you won’t need to refinance through your current lender, so as lenders get geared up to handle the applications there will be a serious effort to get business from any homeowner who may qualify. This competition can only benefit consumers.
I and my colleagues have been advocating for this type of reform for quite some time. Finally, relief is at hand, not only for underwater homeowners but for neighbors whose home values are impacted by the drag of distressed properties, and for taxpayers. The reckless endangerment of our economy by Wall Street has taken a long time to repair, has cost millions their jobs, and continues to impact our daily lives. We certainly are not out of the woods. However, this effort to spur refinancing will help America’s middle class, and it doesn’t come soon enough.
Jackie Speier, D-San Mateo, represents the 12th District in the U.S. Congress.
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