Even as the Fed undertook new measures, a study released by the central bank this week found that tight lending standards and the continuing drop in home prices prevented 2.3 million homeowners from refinancing last year. A combination of high unemployment, stricter lending requirements enacted after the financial crisis and the sheer number of borrowers who owe more than their homes are worth continues to thwart many Americans from taking advantage of rock-bottom rates.
“There’s a huge roadblock in place right now. Folks cannot refinance in the current marketplace,” David Berenbaum, chief program officer at the National Community Reinvestment Coalition, a collection of community-based organizations that promotes equal access to credit. “It’s very disheartening.”
Analysts agree that allowing more homeowners to benefit from low rates could free up tens of billions of dollars in credit, potentially giving the economy a much-needed shot in the arm. Finding a fair and politically viable way to accomplish that goal, however, is proving difficult.
Without policymakers undertaking new fiscal policies aimed at helping troubled homeowners — and helping would-be buyers get access to loans so they can purchase the glut of homes on the market — the Fed’s push to keep rates low is unlikely to accomplish much.
“The fact of the matter is the administration and Congress have to take a much more straightforward and candid look at what’s happening in real estate finance,” Berenbaum said. “[Otherwise] it’s going to continue to slow and drag down the economy.”
Given the current political environment, in which lawmakers have shown little propensity for compromise and where the focus has remained on cuts to the federal budget, congressional approval for new programs or additional spending seems unlikely.
Still, in his recent address to Congress to introduce a $447 billion jobs package, President Obama vowed to “work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent.” The administration has redoubled its efforts of late on housing, exploring a range of options to help revive the battered mortgage market.
Part of that has been a push by the White House to help borrowers lock in the low rates that the Fed has sought to maintain and to make their payments more affordable. The administration’s Home Affordable Refinance Program currently covers mortgages that were originated prior to June 2009 and backed by government-sponsored mortgage giants Fannie Mae and Freddie Mac. To be eligible, borrowers must be current on their mortgage payments, and their loan must not exceed 125 percent of the value of the home.