Yesterday Edward DeMarco, acting director for the Federal Housing Finance Agency Issued a statement to the House of Representatives entitled HR- Private Mortgage Investment Act.
In this discussion, DeMarco reviews some recent changes to HAMP (Home Affordable Refinance Program).
Changes to the program include: eliminating or reducing certain risk-based fees; removing the current 125 percent LTV 5 ceiling; waiving certain representations and warranties; eliminating the need for certain property appraisals; carrying over mortgage insurance coverage; and extending the end date for HARP until December 31, 2013.
These changes were made to the program because so few homeowners were able to refinance under the old guidelines. In other words, the standards were loosened. While the program is still only available to borrowers who are not behind, it has been shown that one of the best indicators of potential default is how far underwater a borrower is, and the underwater cap is about to be eliminated.
In spite of these risk, DeMarco states, however:
Importantly, such refinances should also reduce the Enterprises’ credit risk, and thus losses to
I’ve read several analysts who agree with DeMarco, the theory being that with a lower, more affordable payment, borrowers would be less likely to default. I thought it was interesting to note, however, yesterday’s news that Freddie Mac lost $6 billion in the third quarter. The chief reason given?
Many homeowners are paying less interest because they are able to refinance at lower mortgage rates. And failing and bankrupt mortgage insurers are not paying out as much money when homeowners default.
Broadening the pool of people who are eligible to refinance will undoubtedly mean an increase of homeowners with lower house payments. Let’s not pretend, however, that this program will help ease the risk of taxpayers. Likely as not, this will be another shot to the already bullet-riddled taxpayer wallet.[Thanks L!]