Business
Obama offers home owners a lifeline
Among the key changes: Homeowners who refinance will no longer need to have the property appraised before getting the new rate. This is important because under an earlier government plan, a homeowner could see the perceived value of his home drop by hundreds of thousands of dollars simply because of nearby foreclosures that saw neighbouring properties sell at massive discounts.
The White House said changes to the Home Affordable Refinance Program will make it easier for homeowners to stay in their homes by ensuring that creditworthy owners can get loans without being penalized for declining property values. The new rules apply to homeowners with federally-guaranteed mortgages who are current on their payments.
“There aren’t too many people who could come up with the difference” between what their mortgage balances and the appraised value of their homes, said Rhonda Porter, a mortgage originator in King City, Wash., who helps families refinance loans. “That really does change everything because people don’t need to take a loss because of something that happened next door.”
Karl E. Case, a professor of economics at Wellesley College, said in a recent paper that the decline in house prices from 2005 to 2009 lowered consumer spending by some US$240-billion – equal to about 1.7 percent of all of the country’s economic activity.
The plan relaxes eligibility standards, and presents refinancing as a possibility for those who are 25 per cent or more “underwater” – that is, whose mortgages are at least 25 per cent larger than the value of their homes. To qualify, a homeowner must have taken the mortgage before June, 2009. The loans also must be owned or backed by government-controlled mortgage buyers Fannie Mae and Freddie Mac.
The program doesn’t help anyone who is behind on his payments – all applicants must be up-to-date on their loan.
The initial program, which was launched in 2009, targeted four million Americans. But by August, only 894,000 homeowners had refinanced at lower rates because of all of the conditions attached to the assistance. The White House said there was no way to know how many homeowners may try to refinance under the modified plan.
Copyright 2011. The Associated Press.
