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President Announces New Refinance Program for Underwater Homeowners Based on HARP

January 26, 2012

Led by partner Vincent Howard, our Claremont foreclosure defense lawyers have written here extensively about the Home Affordable Modification Program, HAMP, and its many problems. Less has been written about its sister program, HARP, which offers refinancing help -- possibly because eligibility is limited to people who are only slightly underwater at worst. But this may change in the coming days, since the president announced a new refinancing initiative in this week's State of the Union speech. Acknowledging that housing continues to be a thorn in the side of the economy, President Obama called for a refinancing program that expands eligibility to people who are further underwater. Details are not yet available, but the speech indicated that the program would be paid for with a tax on large financial institutions, a likely tough sell in the House.

HARP, the existing program, is available to borrowers who are current on their mortgages and owe no more than 125 percent of their homes' value. However, not everyone who is underwater met the original criteria, since there can be no recent delinquent payments and the loan must be owned by Fannie Mae or Freddie Mac. In October, the federal government announced that it would expand eligibility under the Fannie/Freddie loans. The current proposal, according to the Wall Street Journal, would build on this, in part by including people with loans owned by other institutions. Borrowers who are current on their mortgages would most likely take out FHA loans, but the article notes that Congress would have to change the current requirement for a 3.5% down payment. Like anyone taking out a new loan to refinance, they would need to apply and go through the usual closing process.

Analysts are pessimistic about the chances of the program in the House of Representatives, where Republicans control voting and generally oppose new taxes on banks. The tax in question was first proposed two years ago in January of 2010, with Obama calling for a "financial crisis responsibility fee" of 0.15% on the liabilities, other than domestic deposits, of financial institutions with at least $50 billion in assets. Analysts said it would raise $9 billion a year, but it faced strong opposition from banking interests and ultimately did not pass even when the House was controlled by Democrats. A real estate economist told the Los Angeles Times that the refinance proposal would not be as helpful as other potential interventions in the housing market, because it would likely just put more money in the pockets of people with current mortgages.

Vincent Howard and our team of Mission Viejo foreclosure defense attorneys would be pleased to see eligibility for refinancing expanded to more borrowers, even if this is not the ideal solution. Owing more than the home is worth traps borrowers in their homes, which is a serious hardship for people who are seeking to refinance loans they took out at the height of the bubble, under much higher interest rates. Indeed, many people who took out loans in that era were glibly promised that they would be able to refinance in a year or so, only to see their homes lose value or their subprime loans add to the loans faster than they could pay down principal. Ideally, however, the Temecula foreclosure defense lawyers at Howard Law, P.C., would prefer to see this initiative followed up by something that would allow principal reductions for people who are stuck in highly overvalued loans, something experts agree is the best solution to the housing downturn.

If you're stuck in a bad home loan and you're tired of red tape and excuses from an unhelpful mortgage servicer, hang up and call Vincent Howard and the foreclosure defense team at Howard Law, P.C. You can reach us through our website or call toll-free at 1-800-872-5925.

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