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February 1st, 2012

Obama’s latest refinance effort: I’ve seen this movie before

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Refi ApplicationThe president addressed the nation today from Falls Church, Va., to announce a widespread housing effort that tackles everything from refinancing non-Fannie and Freddie borrowers to a homeowners “bill of rights.”

Is this proposed refinance plan–that can potentially save you $3,000 a year–a game changer or a pipe dream? At the moment, I—along with many others—am leaning towards the latter. Why? Plain and simple: it requires Congressional approval.

The president’s widespread housing effort requires banks to pay a fee to cover the plan’s estimated cost of $5 billion to $10 billion. Diana Olick of CNBC said Congressional approval alone is the biggest obstacle facing this program—one that could deem it over before it even begins.

Here are the nuts and bolts of the new “streamlined” refinance effort, open to all borrowers except those with loans in excess of $729,750.

To qualify, according to the White House fact sheet:

• Homeowners must be current on their mortgage: Borrowers will need to have been current on their loan for the past 6 months and have missed no more than one payment in the 6 months prior.
• They meet a minimum credit score. Borrowers must have a current FICO score of 580 to be eligible. Approximately 9 in 10 borrowers have a credit score adequate to meet that requirement. 
• They have a loan that is no larger than the current FHA conforming loan limits in their area: Currently, FHA limits vary geographically with the median area home price – set at $271,050 in lowest cost areas and as high as $729,750 in the highest cost areas
• The loan they are refinancing is for a single family, owner-occupied principal residence.  This will ensure that the program is focused on responsible homeowners trying to stay in their homes.

Limited paperwork

The streamlined refinance process means that no new appraisal or tax form is required. Lenders will only need to confirm that you are employed to proceed. According to the White House, “Those who are not employed may still be eligible if they meet the other requirements and present limited credit risk. However, a lender will need to perform a full underwriting of these borrowers to determine whether they are a good fit for the program.”

Aimed at underwater loans

The president’s new refinance plan is designed to even include the most underwater borrowers (above 140 percent LTV), but lenders must agree to write down a portion of that principal before borrowers can qualify. Also, a separate fund would be created to track these streamlined refinances and to better help manage risks in order to make sure the Mutual Mortgage Insurance fund is not disturbed.

Keith Gumbinger, vice president of HSH.com, spoke with Kathleen Pender of the San Francisco Chronicle this morning calling the president’s plan a “politically savvy stroke. Virtually free, hassle-free refinancing for everybody, paid for by someone else.”

In conclusion, even if this expanded refinance plan makes it through Congress, it probably won’t look much like it does today. Furthermore, a program such as this can’t be implemented overnight, it will likely take months.

If this program is the answer to our nation’s housing woes, “where was it three years ago?” asked Gumbinger?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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