Up to now, the administration hasn't had a very successful program to help homeowners. Will its latest attempt fare any better?
A few years ago, the Obama administration unveiled an effort to refinance millions of mortgages owned or guaranteed by Fannie Mae and Freddie Mac. It didn't work out so well. After two-and-a-half years, the program accounts for less than a million mortgages refinanced. As a part of the White House effort to stimulate the weak economy, the president hopes to fix this program. Due to a couple of key changes, it may work better now.
What's New This Time?
So what's different now compared to 2009? Now the effort has more parties on board who have agreed to expand its reach. In particular, the Federal Housing Finance Agency, the regulator responsible for housing finance giants Fannie Mae and Freddie Mac, has agreed to loosen a number of requirements. Let's look at some of the key problems and solutions.
Problem: Underwater and slightly-above-water borrowers are not eligible.
Solution: Provide refinancing regardless of equity levels
This is arguably most significant change. For borrowers whose mortgage is owned or guaranteed by Fannie and Freddie, the FHFA will ignore how much (or how little) equity they have in their home when they apply for refinancing. So even if a family's mortgage balance is much larger than the value of its home, it could still qualify for refinancing if other conditions are met. This is a big deal. In the past, borrowers' loans could not exceed 80% of the value of their home, at most.