Could Obama's Refinance Program Work?

My husband and I are a young couple and like many of our friends, we bought our home years ago when housing prices were still high. We had a growing family, knew we were in a location that we planned on staying in for a long time and although interest rates were high, we still thought we would prefer to own than rent.

And even though it hurts now to see what we could get for the money we spent back then, I don't regret our decision. In our case, we were able to snag a beautiful home, close to family, and in a very desirable part of our area.

We've been able to pay our mortgage, although some months it's been very tight, but we've never been able to refinance. Our home just won't appraise for what we paid. But now with Obama's plan for underwater home owners, is it really a possibility?

The following inserts were taken directly from the NAR Website:


"Under the refi initiative President Obama discussed in his speech, underwater home owners who are struggling to stay current on their mortgage would be able to refinance to take advantage of today’s historically low rates.

Policy experts speaking with politically active REALTORS® in Washington this week said it would be relatively easy to create the program if an agency like FHA or even if the two secondary mortgage market companies Fannie Mae and Freddie Mac were given responsibility to do it. As policy consultant and former HUD official Brian Chappelle put it, the program could be implemented “almost overnight” because FHA already has its lenders and refi procedures in place.

But Chappelle and others said if FHA or the GSEs undertook the program, it would be best for the government to create a separate insurance fund to cover the new refinanced mortgages. That way, the entities’ main insurance funds wouldn’t be at risk should a portion of the loans go bad.

Brian Gardner, a Wall Street analyst, said the program would require close coordination with the Federal Reserve, otherwise investors in mortgage backed securities would demand a risk premium in interest rates to account for future political uncertainty of the program.

Patrick Swire, a former Obama administration domestic policy advisor and now an analyst with the Center for American Progress, said Obama’s refi initiative is a logical extension of the administration’s previous efforts to help underwater home owners since the economic crisis hit several years ago. The Home Affordable Refinance Program (HARP) was a first attempt to give lenders, investors, and troubled borrowers an incentive to modify their mortgage before the house is lost to foreclosure. This new program would provide an opportunity to implement lessons learned from that earlier effort.

Would lenders even want to participate? Ann Schnare, a policy consultant who formerly was an executive with Freddie Mac, said lenders are worried about getting hit with loan repurchase penalties, which previously happened infrequently but since the mortgage market upheaval have become far more common. So, unless that issue is addressed, lenders would likely be worried about the risks of participating.

Of course, whether the program will even pass Congress is another matter altogether, and that remains the big question. But the panelists appeared to agree that implementation was clear-cut should it pass."