Mortgage Refinancing Expanded Under Home Affordable Refinance Program

According to recent mortgage lending reports, the Obama administration eased eligibility rules Wednesday for its Home Affordable Refinance program, lifting the maximum loan-to-value ratio to 125% from 105.  The shift, which regulators had hinted was coming, is aimed at making refinancing available to more people whose homes are worth less than their mortgage loans. Clearly under the President’s new mortgage relief program, more homeowners will be eligible to refinance their bad credit mortgages or high rate ARM’s that they can no longer afford.  125% mortgage refinancing could pave the road for a quicker recovery.

HARP is open to homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac, the mortgage financing giants now under government control. It covers 1st mortgages only.  Second mortgage loans are not eligible for the Home Affordable Refinance Program.  The mortgage refinance program, launched this year, has gotten off to a slow start, in part because the maximum 105% loan-to-value ratio was too low to include many homes that have fallen sharply in value.  The new 125% maximum means an eligible homeowner with a $375,000 home loan can refinance if his or her house is worth at least $300,000. But the borrower still must be able to afford the new loan. Income requirements are an increasing problem as unemployment soars and many workers are dealt pay cuts.

Treasury Secretary Timothy F. Geithner said the move to raise the loan-to-value limit was “a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.”  But refinance activity in general remains vexed by the jump in mortgage rates from their generational lows in April. Refinance applications to lenders have tumbled since mid-May as rates have surged, according to Mortgage Bankers Assn. data released Wednesday. Despite a down-tick in rates in the last two weeks, refinancing activity hasn’t rebounded.

Home refinancing applications fell 30% last week from the previous week, to the lowest level since November. Home loan applications fell 4.5%, according to the report. The average contract interest rate for thirty-year fixed-rate home loans decreased to 5.34% from 5.44% a week earlier. For fifteen-year fixed loans, the rate averaged 4.81%, down from 4.93%. The average upfront fees known as points, including the origination fee, edged up to just over 1%.

The 30-year fixed rate bottomed out at 4.61% in late March, the lowest level since the mortgage group started keeping track in 1990.  The recent mortgage rate trends may delay the arrival of a solid housing recovery, Federal Reserve Bank of San Francisco President Janet Yellen said in a speech Tuesday.  “I am concerned that FHA mortgage rates, which have risen of late, could place a drag on a still very sick housing market, potentially driving home prices still lower and pushing more borrowers into foreclosure,” she said.