Many people are wondering about President Obama’s refinance plan, announced Wednesday, and a new program that would try to make thousands of vacant homes available for rent.
Is this your chance to refinance and take advantage of the historically low interest rates? Will this really help the housing market — and the economy? Let’s walk through it.
First, let’s look at the refinance piece. Foreshadowed by the president in his State of the Union address last week, this plan seeks to expand a version of an existing program that lets people refinance if they have loans backed by Fannie Mae, Freddie Mac or the Federal Housing Administration.
On Wednesday, Obama proposed allowing all homeowners who are current on their mortgage — even those who do not have loans backed by Fannie, Freddie or FHA and even those who are underwater on their mortgage — to also refinance more easily. The administration says the average homeowner would save $3,000 a year.
The criteria, according to the White House: Homeowners must be current on their mortgage for the past six months; they must meet a minimum FICO credit score of 580; and they must have a loan that is no larger than the current FHA conforming loan limit. In the Washington area, that loan limit is $729,750. Also, only owner-occupied, single-family homes are eligible.
For those who meet the criteria, the administration proposes a more streamlined application process for refinancing in which lenders would only need to confirm that a homeowner is employed and the home would not have to be appraised.
And how will this program be paid for? The White House says it will cost about $5 billion to $10 billion, depending on how many people take advantage of it. The administration plans to pay for it in part by means of a proposed fee levied on banks.
The program would, however, require congressional approval, so many economists are skeptical that it will be implemented, given the unlikelihood of Republican support, especially during an election year.
If Congress did approve such a plan, some economists believe it would help the economy by putting more money in people’s pockets. More than 30 million homeowners are current on their mortgages and could take advantage of the plan.
“The macroeconomic benefit could be significant,” said Mark Zandi, chief economist at Moody’s Analytics, in a Washington Post post on Where We Live. “If, say, half refinance in the next six months, then this would save homeowners over $20 billion in mortgage payments this year and double that next year. Homeowners’ extra cash will quickly find its way into the economy. says the economy.”
Repurposing vacant foreclosed homes to rentals
The second piece of the administration’s proposal would allow Fannie Mae and Freddie Mac to sell homes that they own through foreclosure to investors who would then agree to rent them out. That would be done through the agency that oversees Fannie and Freddie, the Federal Housing Finance Agency, via a “pilot sale.”
There was not much detail on this piece of the plan — such as how many homes would be involved and when the sale would happen — but some economists say that it could make a dent in improving neighborhoods.
Fannie, Freddie and FHA currently own more than 200,000 properties — holding the damage from the housing crash — and roughly half are currently for sale.
Selling those homes to investors who would then rent them out would help fill them and thus help neighborhoods, according to Jed Kolko, chief economist at Trulia.com, a real estate Web site. “It makes a lot of sense — it’s a way of getting nonperforming assets off the books,” he said. “Vacancies tend to drag down the value of neighborhoods.”
The catch, he said, is that homes owned by Fannie and Freddie tend to be single-family homes, which can be more complicated to rent out compared to apartment units. Also, he said, the bulk of the housing stock owned by Fannie and Freddie are clustered in areas with high foreclosure rates — which means not a lot are likely in the Washington area.
“There’s a bit of a mismatch in terms of where those homes are,” he said.
Tell us what you think of the plan and what you think would help the housing market in the comments section.
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