White House extends refinancing program for troubled homeowners

White House extends refinancing program for troubled homeowners 

Tuesday, March 2, 2010

The Home Affordable Refinance Program has been of very little help to homeowners.  Even so, the Obama administration announced Monday that borrowers with little or no equity in their homes will have another year to take advantage of a refinancing program. 

The Home Affordable Refinance Program was set to expire in June, but so far it has reached fewer than 200,000 of the up to 5 million borrowers federal regulators hoped it would help.

Market conditions have not changed significantly since the program was launched last year, Edward DeMarco, acting director of the Federal Housing Finance Agency, said in a statement. So to give lenders more time to implement the plan and to "support and promote market stability," the initiative will be extended to June 2011, he said.

The program is aimed at the millions of borrowers whose home values have been diminished by a weak housing market, or who owe more than their houses are worth, making it impossible for them to take advantage of historically low mortgage rates. Originally, the program targeted borrowers whose loan balances were slightly higher than their property values. The program was later expanded to include those who owe up to 25 percent more than their homes are worth.

These underwater borrowers are at greater risk of foreclosure, and the administration hoped that lowering their payments would decrease their chances of falling behind.

But the program ran into several problems. Many borrowers were too deep in debt to qualify, and the program was limited to loans backed by Fannie Mae or Freddie Mac, the federal mortgage financing companies. The initiative was also dogged by delays as lenders struggled to update their computer systems to accommodate the program. Another obstacle was that many homeowners have second mortgages or private mortgage insurance, which can get in the way of refinancing a primary loan.

And for some borrowers, closing costs and other refinancing expenses were not worth the lower interest rates, especially for homeowners worried that they might lose their jobs or might hit another financial crunch later.

"The overall volume last year was an embarrassingly small amount. I don't think it will make a big difference" to have the program extended, said Thomas Lawler, a housing consultant in Vienna.