A long-awaited federal program will soon allow more Phoenix-area homeowners to refinance their mortgages and lower their payments in spite of owing far more than their homes are now worth.
The expansion of the Home Affordable Refinancing Plan will allow for new home loans in March, according to new details from the U.S. Department of Housing and Urban Development, and homeowners are already lining up to apply.
President Barack Obama announced the plan in October, and borrowers have awaited the details since.
The program targets homeowners who bought during the housing boom and have been unable to refinance up until now because their homes are no longer worth enough to secure a new mortgage through traditional refinancing.
An earlier version of HARP allowed homeowners with mortgages backed by two federal loan agencies to refinance, but only if their new loans were no more than 125 percent of their home’s current value. In metro Phoenix, where values have plunged by more than half since the market’s peak in 2006, that limit left many borrowers out.
The update to the program, which lenders refer to as HARP 2.0, lifts that loan-to-value restriction completely.
The goal is to help homeowners save money and fend off foreclosures by lowering payments.
For a typical $250,000 mortgage, a switch from a 6 percent rate to current rates of about 4 percent would cut the monthly payment by about $300.
Matt Oliver of Peoria-based Lund Mortgage said despite the delay, some bigger banks have already refinanced borrowers deeply underwater and are now holding the loans, waiting to turn them over to the federal mortgage agencies Fannie Mae and Freddie Mac.
Albert Hasson was able to get his bank, Flagstar, to approve a refinance on his Phoenix-area home in late December even though the refinancing program was stalled at the time.
“The expanded HARP program is only semistalled,” Hasson said.
He said other homeowners should call their servicers now to see if they can be approved early.
The expanded refinancing program is available only to those with mortgages backed by Fannie Mae and Freddie Mac, but the two entities back more than half of all mortgages.
Eligible homeowners can have missed only one payment in the past year and must still bring in enough monthly income to afford their lower payment.
Some borrowers will be required to show proof they have the income to pay the lower mortgage payments, but the guidelines aren’t clear on who will be required to do this.
HUD Secretary Shaun Donovan told The Arizona Republic in October that part of the goal of expanding the refinancing program is to reward homeowners who have continued to pay their mortgages despite huge drops in their home’s values and potentially prevent more homeowners from walking away. Estimates show nearly half of Arizona’s mortgage holders are underwater.
The previous HARP plan, which allowed homeowners to refinance if their loan-to-value ratio was 125 percent or lower, had the same intent. But it helped few metro Phoenix homeowners because home values in the region have plummeted 60 percent during the crash.
While the program will be expanded, some borrowers aren’t eligible.
Kim Baker has been in her Phoenix home for more than five years and owes at least 40 percent more on her mortgage than what her house is worth. She can’t refinance to reduce her 6.5 percent interest rate because her loan isn’t backed by Fannie or Freddie. She wants the federal government to give lenders an incentive to help homeowners like her, too.
“Otherwise, we’re stuck,” she said. “Can’t sell, can’t re-fi, can’t lower our payment, can’t move to a cheaper house down the street. We didn’t want to walk away or foreclose. So we keep paying every month hoping the economy turns around and maybe in several years we’ll break even.”
Much of the delay introducing the expanded refinancing program has been because of slow negotiations with lenders, and it is still not clear if the nation’s biggest banks will participate, market watchers say.
The government struggled to get big lenders to cooperate with another program, a loan-modification plan that would reduce payments for struggling homeowners.
It’s likely to take lenders a few months to implement the expanded refinancing program, so it may not be clear until summer whether the program will be more successful.
Government officials say it has taken longer than expected to work out details with lenders on the expanded refinancing plan. The federal government has several hurdles to overcome with lenders and the mortgage market to make the new program work.
Currently, most loans are bundled together as securities and resold to investors, who make money off homeowner interest payments.
But the market doesn’t currently deal with loans that are intentionally issued on homes that are worth less than the amount of the loan. It’s not clear yet whether the federal government will create new securities to sell to investors or add a portfolio to hold the loans in.
The federal government also has to negotiate with lenders holding second mortgages on a home so they won’t stall or stop the new refinancing program. Under the program, those lenders can get a small settlement when the loan is refinanced.
The expanded HARP program also now is open to investor-owned properties.
Homeowners can check to see if their loan is backed by Fannie or Freddie at makinghomeaffordable.gov.
Jay Luber, president of Galaxy Lending, said it appears the new HARP will reduce rates, fees and the terms of a loan, ultimately providing a more affordable and less risky mortgage.