Home Loan Refinancing Accessible Again Under Obama's Mortgage Plan

Posted by  on Apr 17, 2009

In February 2009, President Obama and Capitol Hill lawmakers unveiled the Homeowner Affordability and Stability Plan. This ambitious plan targets mortgages owned or held by the government sponsored enterprises Fannie Mae and Freddie Mac. By leveraging the power of federal tax dollars across one of the largest portfolios of mortgage properties in the United States, Obama's economic team hopes to ease the burdens of homeowners throughout the country. At the same time, effects of the HASP can make the buying process easier for prospective homeowners.

Lowest Mortgage Rates Become Attainable Under HAMP
One crucial part of HASP is the Home Affordable Modification Program (HAMP), which allows loan modifications for those in trouble with risky mortgages like sub-prime or payment option ARMs. By modifying the loans' rates and terms and capping monthly payments at 31% of borrowers' income, policy makers hope to improve stability in the housing market.

Current Interest Rates Help Responsible Borrowers Avoid Foreclosure
Though the majority of American homeowners remain current on their mortgages, recent surveys report that up to half are only a few missed paychecks away from a personal financial crisis. In many cases, the Home Affordable Refinance Plan (HARP) authorizes GSEs to underwrite up to 105% of the value of homes for borrowers in good standing. Declining home prices kept many borrowers with "underwater" home loans stuck with higher rates with no way to refinance. By refinancing homes at today's low mortgage rates, Fannie Mae and Freddie Mac can reduce the risk of default by these borrowers.

Home Loans Accessible Again for New Borrowers
For months, economists have feared stagnation caused by "stuck" credit markets. Enabling Freddie Mac and Fannie Mae to underwrite a broader portfolio of mortgages helps smaller lenders recoup their previous investments. Policy makers expect this shift to inject new capital into banks and credit unions, where buyers with strong credit can more easily gain approval for new home loans.

HASP sets some important boundaries for borrowers, especially for Americans who have dabbled in house flipping or other forms of real estate speculation. Refinancing under HASP is limited to a borrower's primary residence. However, borrowers with good credit may find it easier to find financing for investment properties, especially homes purchased directly from banks during foreclosure sales. By helping Americans focus on stable, long term home loans, policy makers hope to ease much of the tension in the housing market.


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