In the Thursday evening speech by President Barack Obama before Congress where he introduced The American Jobs Act, the President addressed many of the nation's economic woes, including what many feel is the backbone to the recovery of the American economy, the housing industry.
"The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy," said Obama to a round of applause. "The question is whether we can restore some of the fairness and security that has defined this nation since our beginning."
In restoring that "fairness and security," Obama pledged that his Administration will work with federal housing agencies to help more people refinance their mortgages at interest rates hovering around the four percent mark.
"How is the Obama Administration going to do this? Will he force lenders to lower requirements so that more people can qualify, once again repeating the vicious cycle of bad loans," questioned Philip Tesoriero, co-founder of ShortSaleSpeedway. "These are painful times, but they’ll be a lot less painful if the government just got out of the way. The sad truth is that there are too many people who clearly do not have the ability to pay or get a new loan. They need to sell, and in most cases, the sale will result in a short sale. This will create a new stable of buyers to get this country back to more 'normal' levels of homeownership."
The Obama Administration has already dabbled in the refi arena jump start the housing marketplace when in 2009, the Home Affordable Refinancing Program (HARP) was launched. But HARP has seen little success to date. Nationwide through 2010, Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs), have purchased or guaranteed more than 6.8 million refinanced mortgages. Of that total, 621,803 were HARP refinances with loan-to-value (LTV) ratios between 80 percent and 125 percent, up from 190,180 in 2009. Further proof that HARP isn't exactly living up to its planned expectations came in March of the year when the Federal Housing Finance Agency (FHFA) announced an extension of HARP to June 30, 2012 as the program was set to expire on June 30, 2011.
“A responsible homeowner is one who is still paying their mortgage even though their credit score has dropped along with the value of their home and possibly their income," said Eric Tishaw, chief operating officer of Hometown Lenders. "The problem is that these ‘true’ responsible homeowners still cannot qualify for a refinance under the current underwriting standards. The bottom line here is that Obama’s initiatives provide nothing substantial to motivate (or allow) banks or investors to lend any differently than how they are right now. Underwriting guidelines, credit score, and appraisal requirements remain unchanged and still don’t match up with current market needs. In fact, what has actually happened has been just the opposite of what we heard last night. The monthly mortgage insurance cost of an FHA loan has more than doubled and cash out limits have gone down over 10, leaving less tangible benefits to the homeowners who can qualify. It’s no surprise that the number of new loan applications has dropped right along with the interest rates.”
Obama promised his refi plan put more than $2,000 a year in a family’s pocket, and "give a lift to an economy still burdened by the drop in housing prices." But like many who heard the President's address to Congress, much is still in the air in terms of facts as the full details and budget of the American Jobs Act will be released next week.
"The HARP program, a program that had great success only if you qualified for it, only allowed homeowners who had loans owned by Fannie Mae and Freddie Mac as those were the loans that the US government owns and backs to refinance," noted Fred Arnold of American Family Funding and board member of the National Association of Mortgage Brokers (NAMB). "Many of the loans funded—prime, sub-prime and alternative doc products, neg-am and interest only loans—prior to the meltdown of the market were not owned by Fannie Mae and Freddie Mac. In addition, many homeowners that have the ability to make a refinance payment are already underwater on their equity beyond what HARP allows. HARP only allows for a one-time refinance under its guideline, however, for many Americans, rates have dropped and those homeowners could benefit from refinancing again."
So next week, the nation awaits as hopefully more details are revealed on The American Jobs Act and its impact on the economy and the housing market, and hopefully, as President Obama so eloquently put it during his Thursday evening address to Congress, this plan will involve "No more boondoggles ... no more bridges to nowhere."