By Mike Colpitts
The U.S. government’s giant mortgage lenders will soon expand refinancing to underwater homeowners on their mortgages in efforts to reduce the growing number of homes being foreclosed, and aid the nation’s hurting economy. Freddie Mac and Fannie Mae will “remove barriers that exist in the current refinancing program” allowing more homeowners to qualify for lower mortgage rates.
The move to provide more refinancing to homeowners was vaguely included in President Barrack Obama’s speech before Congress Thursday night. “This has the potential to not only help these borrowers, but their communities and the American taxpayer by keeping borrowers in their homes and reducing the risk to Fannie Mae and Freddie Mac,” a White House statement released following the speech said.
The program would apparently be fashioned after a proposal offered by California Senator Barbara Boxer (D-Calif.), who sent Federal Housing Finance Agency (FHFA) Director Edward DeMarco a letter last week thanking him for his positive comments related to her refinancing bill proposed in Congress.
Up to as many as two million underwater homeowners could be helped under Boxer’s proposal. However, no figures were mentioned either by President Obama during his speech or in White House statements made afterwards. The FHFA will work out details on the refinancing plan before Freddie and Fannie offer mortgages to underwater homeowners.
The refinances will remove barriers that have stopped millions of underwater homeowners from refinancing, and save many homeowners at risk of foreclosure from losing their homes.
Under Boxer’s plan, refinancing limits on homes that are upside down on mortgages would be removed so that homeowners are able to refinance at lower mortgage rates no matter what they owe on their mortgage. “The refinances will save the average family $2,000 a year,” Obama said during his speech before both houses of Congress.
Homeowners will be able to lower monthly mortgage payments and get into more stable loans at record low mortgage rates under the refinancing program, which does not need to be approved by Congress. The 30-year fixed rate mortgage averaged 4.12% this week hitting a new all-time record low, according to Freddie Mac.
Boxer’s bill gained momentum in Congress when Republican Senator Johnny Isakson (R-GA) joined the California lawmaker as a co-sponsor. Isakson, a licensed real estate broker has spearheaded several real estate related issues before Congress.
As part of Obama’s jobs proposal, the president also proposed an investment of $15 billion to put construction workers back to work “rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses.” Obama’s efforts to help homeowners are part of the Making Home Affordable Program that the administration implemented to aid the foreclosure crisis and help some homeowners avoid foreclosure.
The construction program would focus on both residential and commercial properties and expand innovative property solutions like land banks, which were first started by President Abraham Lincoln. “This approach will not only create construction jobs but will help reduce blight and crime and stabilize housing prices in areas hardest hit by the housing crisis,” a White House statement said.