An unused Florida mortgage refinance program designed to help Americans whose home values have dropped is due for a major overhaul by federal regulators. The program was set in place to help those who are unable to refinance which is adding to the stagnant housing market. Unfortunately very few people know about the program and those who do know about, don’t want to take the time consuming steps to participate.
The overhaul will streamline the process and eliminate most of the hoops home owners need to jump through with the current program. By removing the requirement for appraisals and underwriting for most borrowers, federal regulators believe the program will be utilized and the housing market will improve. However, the eliminations will only be available to those who are current on their mortgage payments. Some fees that have made most borrowers shy away from refinancing will also be waived granted they meet the requirements.
The Florida Home Affordable Refinance Program, or HARP, was rolled out two years ago and lets borrowers, with less than 20% in equity, refinance as long as their loans are backed by Fannie Mae or Freddie Mac. To date only 894,000 borrows have used it while just 70,000 of them are significantly underwater. Up to 1 million borrowers should be able to refinance, getting a lower rate and continuing their payments. This will offer many families the extra funds they need to help boost the economy back.
In the past, lower interest rates proved effective in helping an economic downturn. Lower mortgage rates will create a wave of refinancing that will offer up some extra cash for luxuries most families had to cut out of their everyday lives. This extra spending will give a boost to the economy. With interest rates as low as just 4.11% now, the program still has not seen any success.
This is primarily caused by homeowners unable to refinance. Because refinancing is basically a new loan many homeowners are unable to refinance simply because their homes are worth less than their mortgages. The others may have blemishes on their credit, bad employment histories, or insufficient income to meet refinancing qualifications. Others try to avoid new fees imposed by Fannie and Freddie and other closing costs. This causes most borrowers to avoid refinancing unless they qualify for HARP.
Without the home owners ability to refinance the economy is at a stalemate. Estimates from Goldman Sachs state if current borrowers refinance, they would save around $24 billion annually. Columbia Business School researchers claim the beneficiaries would be working and middle-class borrowers whose mortgages are below $200,000. This is Obamas reason for the overhaul of the HARP program. Without creating the imperative refinance wave, the economy may not recover as strongly as it should.
One problem is that lenders are cautious with who they refinance. They are picking and choosing only the safest borrowers in the event that Fannie and Freddie force the lenders to buy back a loan if flaws in underwriting emerge. Therefore they are asking for extra documentation, more proof of income, and appraisals which are raising costs and leading to more denials.
The overhaul of HARP could spur 1.6 million refinances by the end of 2013. This will allow the economy a boost towards getting stronger. Those who are looking to refinance to a lower rate may soon have the chance, regardless of their equity.
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Gina Patterson is a personal finance consultant and content contributor for Granite Card, a place to obtain a Credit card to rebuild credit for those who may find themselves in tough circumstances.