About 60,000 Refinance Mortgages Under U.S. Government Program
Thursday, August 13, 2009; 4:08 PM
A government program that allows borrowers with little or no equity in their home to refinance has helped about 60,000 homeowners so far, according to government data released Thursday.
The refinancing program is part of the Obama administration's massive housing program, known as Making Home Affordable, which has a goal of helping 5 million borrowers over three years. It is aimed at borrowers who could not qualify for traditional refinancing because they had less than 20 percent equity in their home, something that has been exacerbated by plummeting housing prices throughout most of the country. The report comes as new data show that about one-third of borrowers owe more than their home is worth, putting them at a higher risk of falling into foreclosure.
Since the program was initiated in April, 60,484 borrowers have been able to refinance. About half of the deals, 30,192, were completed in July, according to the government data.
"We are seeing significant results" from the programs, James B. Lockhart III, director of the Federal Housing Finance Agency, said in a statement. But "much more work needs to be done."
The program is limited to borrowers with loans backed by Fannie Mae and Freddie Mac, government-controlled financing companies. Initially those homeowners were eligible to refinance as long as their mortgage did not exceed 105 percent of the current value of their property.
For example, if the value of a property is $200,000 but the owner owes $210,000, he or she could qualify. But last month, the government announced it would expand the program to borrowers' whose mortgage do not exceed 125 percent of the current value. So the mortgage on that house could be as much as $250,000 and still qualify for refinancing.
The refinancing program is separate from a high-profile government loan modification plan, which targets distressed borrowers at risk of losing their home and attempts to lower their payments to affordable levels. The refinancing program is aimed at borrowers who have not missed any payments but who would benefit from a cheaper mortgage. The effort is seen as a way to potentially generate more spending cash for financially strapped consumers.
Government and industry officials have said the refinancing program was hampered early on by difficulty determining which borrowers were eligible and a lengthy process to determine the proper value of a home. Also, some borrowers were scared away by a creep in historically low mortgage rates, they said.
The average 30-year, fixed-rate mortgage had an interest rate of 5.29 percent this week, according to a weekly survey released by Freddie Mac. That is up from 5.22 percent the previous week but still down significantly from last year when rates averaged 6.52 percent around this time.
About 32.2 percent or 15.2 million mortgages were "underwater" by the end of June with the homeowner owing more than their home was worth, according to a report issued Thursday by First American CoreLogic, which studies the mortgage market.
Borrowers in Nevada (66 percent) and Arizona (51 percent) were the most likely to be underwater. Locally, the problem was not as severe. In the District, about 23.8 percent of borrowers are underwater, compared with 28.6 percent in Maryland. Virginia has the highest percentage of underwater borrowers locally, 33.1 percent.
Underwater borrowers are considered to be at higher risk of falling into foreclosure. Overall, the figures were flat compared with March and indicate that the country might be at "the peak" of a cycle, Mark Fleming, chief economist for First American CoreLogic, said in a statement. But until "negative equity recedes and unemployment declines, mortgage risk will continue to be very elevated," Fleming said.
After record declines over the past year, home prices have begun to stabilize in some parts of the country, according to recent data. But economists have said nationwide prices are likely to continue to fall through this year as more foreclosed properties weigh on the market and drag down prices.