US homeowners who owe more than their properties are worth got new help on Monday when a US regulator expanded a government programme in a step that could help up to one million borrowers. The Federal Housing Finance Agency, which oversees mortgage finance giants Fannie Mae and Freddie Mac, eased the terms of a refinancing program which helps so-called underwater borrowers who have been on time with payments but are unable to refinance.
The overhaul is the latest effort to deal with a problem at the centre of the economy's weak recovery - the crippled housing market. Officials have been frustrated that numerous efforts to bolster the market have shown little success. FHFA said it was scrapping a cap that prohibited borrowers whose mortgages exceeded 125 percent of their property's value from participating in the Home Affordable Refinance Program (HARP), which is targeted at loans backed by Fannie Mae and Freddie Mac.
"This is an appropriate balancing of risk that's being borne by Fannie and Freddie, and hence the American taxpayer," FHFA's acting director, Edward DeMarco, said in a conference call with reporters. "This will make HARP more available." The government seized Fannie Mae and Freddie Mac, the two largest sources of US mortgage financing, in September 2008 as losses on loans they backed spiralled, and the two firms have so far been propped up with $141 billion in taxpayer funds.
After meeting with DeMarco earlier this month, one lawmaker said the expanded program could help as many as 600,000 to one million borrowers. But that is only a fraction of the estimated 11 million homeowners who are underwater. DeMarco said there was no way to forecast how many borrower could be helped.
The Obama administration had pushed FHFA to widen the program to more borrowers. The regulator had moved cautiously, wary of piling two much risk on the two mortgage companies. To encourage banks to participate in the program, FHFA is revamping it to protect lenders from having to buy back HARP loans if underwriting problems are later found. Banks will only have to verify that borrowers have made at least six of their last mortgage payments and, in most cases, there will not need to be an appraisal.
FHFA said Fannie Mae and Freddie Mac will waive certain fees for borrowers that refinance into loans with a shorter term, such as 15 years, aiming to spur homeowners to pay down the amount they owe at a faster rate. Along with the others changes, FHFA said it was waiving the need for certain contracts that outline the incentives of originators, issuers, and investors when a loan is sold and scrutinised. Ending these representations and warranties will increase competitiveness for lenders and create an incentive for them to refinance existing borrowers.
FHFA also said it was extending the life of the program until December 31, 2013 and that it wanted to focus on loans made between 2004-2008, when borrowers typically locked into rates above 5 percent. Currently, the average rate for a 30-year fixed loan is 4.11 percent, according to Freddie Mac. The programme is limited to loans that Fannie Mae and Freddie Mac guaranteed before June 2009.