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May 11th, 2012

Obama touts current refinance effort, urges Congress for more

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House on Calc for tri refiThe president spoke with voters in Reno, Nevada today to not only publicize recent refinance figures, but also to make a campaign push, urging lawmakers to pass additional refinance legislation.

According to the White House, since the details of HARP 2.0 were announced last fall, refinance applications have increased 50 percent. “Much of this increase is driven by a spike in HARP participation,” said the White House in a release. “Roughly one in three borrowers applying for refinancing today is applying for a loan through HARP, up from less than one in ten a year ago.”

Calling on Congress

According to this morning’s release, the president’s call to Congress will focus on three main areas:

  1. Remove the remaining barriers that borrowers with GSE loans continue to face
  2. Provide straightforward refinancing opportunities to non-GSE borrowers
  3. Provide homeowners with a incentive to rebuild their equity

Choosing to rebuild equity

While many of you have probably already heard of potential efforts or discussions surrounding numbers one and two, number three might sound like a new one. The White House is proposing legislation that would essentially cover about $3,000 worth of closing costs if refinance borrowers choose to take the benefit of a reduced rate and “apply that savings to rebuilding equity in their homes.”

According to the White House, here’s how it will work:

A borrower has a 5.5 percent $216,000 30-year mortgage originated in early 2007. The loan now has an outstanding balance of $200,000, but the house is worth $167,000 (a loan-to-value ratio of 120%). The monthly payment on this mortgage is $1,228. While this homeowner is responsibly paying her monthly mortgage, she is locked out of refinancing. By refinancing into a 4.0 percent 20-year mortgage loan, this borrower keeps her monthly payments effectively the same. After five years her mortgage balance would decline to $165,000, bringing the homeowner above water.

How to finance your refinance

The reality is that much of what the president is proposing is exactly that, a proposal. Gaining bipartisan Congressional approval for most or all of what’s being referred to as the president’s “To Do List” will be extremely challenging, especially in an election year.

Since there is no federal plan in place (at the moment) to cover your refinance closing costs, we come back to the question we’ve been asked a thousand times: “What’s the best way to finance my refinance–is it better to pay closing costs out of pocket, finance them into the loan amount, or trade them for a higher interest rate?”

The truth is, there’s no one right answer since each has their own benefits and costs associated with it. But HSH.com has developed a refinance calculator that will help you determine which finance option is best for you.

The TriRefi refinance calculator allows you to run the numbers for a Traditional Refinance, a Low-Cash-Out Refinance and a No-Cash-Out Refinance. Fill in the information once and instantly compare the costs and savings.

Just this week, CBS MoneyWatch Editor-at-Large Jill Schlesinger was on CBS 3 News in Philadelphia, urging consumers to utilize the TriRefi calculator. Personal finance journalist Vera Gibbons wrote about the calculator in a recent edition of Real Simple magazine, saying “If you’re still not sure which type of refi to choose, crunch the numbers at hsh.com/refinance-calculator to see a side-by-side comparison.”

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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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