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President Obama's Mortgage Refinance Plan
DDA Mortgage • November 2, 2011
Mortgage refi plan targets hard-hit borrowers
By Steve Goldstein, MarketWatch
WASHINGTON (MarketWatch) — President Barack Obama on Monday unveiled a changed mortgage refinance plan that would allow homeowners who have suffered steep price declines on their properties to get cheaper loans.
The Home Affordable Refinance Program, the only program specifically designed for owners whose mortgages are worth more than the value of their homes, is being changed so that more Fannie Mae- or Freddie Mac-guaranteed mortgages could be refinanced. Use external link to see if Fannie Mae has guaranteed your mortgage. Use external link to see if Freddie Mac has guaranteed your mortgage.
With house prices nationally roughly a third below their peak, there are millions of borrowers who will potentially be eligible to refinance into mortgages near record lows — the 30-year carried an interest rate of 4.11% last week — rather than the mere 894,000 borrowers who have used the program so far.
“These are important steps that will help more homeowners refinance at lower rates, save consumers money and help get folks spending again,” Obama is due to tell an audience in Las Vegas, the city with the highest foreclosure rate in the country. Nevada is the only state which cumulatively is underwater on mortgages.
The new plan does have its limitations: it will require homeowners to be current on their payments and it’s only for loans sold to Fannie or Freddie by May 31, 2009. And of course, not all loans are backed by the housing giants, though state attorneys-general are separately negotiating a settlement with the nation’s top lenders that may include an element of mortgage modification.
“Given the magnitude of the housing bubble, and the huge inventory of unsold homes in places like Nevada, it will take time to solve these challenges,” Obama admitted, according to prepared remarks.
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The Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, estimates that refinancing could double under the program. Even so, the program would go only a small way in addressing the roughly 11 million homeowners who are underwater.
To spark interest in HARP, the program will lower fees, eliminate the current 125% loan-to-value ceiling, waive lender warranties and eliminate the need for property appraisals.
White House officials say the refinancing could save owners about $2,500 each year.
Gene Sperling, the director of the National Economic Council, said the key element of the plan is the removal of reps and warranties. “Removing reps and warranties has the potential to unleash competition for housing refinance,” Sperling told reporters on a call.
The industry embraced the initiative.
“Lenders are particularly gratified that the refinements will provide relief from some representations and warranties that lenders face when originating new loans,” said David Stevens, president and chief executive of the Mortgage Bankers Association. “These changes alone should encourage lenders to more actively participate in HARP.”
He cautioned that “it will take a bit of additional time” even after FHFA guidelines are introduced in November to implement them.
Politically, the plan is the start of a once-a-week effort to show the Obama administration can get things done even when legislative efforts are blocked in Congress, according to the New York Times.
For the economy as a whole, the program is seen having only a limited impact.
Yelena Shulyatyeva, an economist at BNP Paribas, calculates that the program could leave to savings on the order of $2.75 billion — or 0.02% of annual disposable income.
“While the households that benefit will see an increase in disposable income of as much as 5% as a result of lower mortgage payments, in the aggregate, the direct impact is not material from a macroeconomic point of view,” she said in a note to clients.
“This would hold even if the program is more successful than the FHFA anticipates. Nevertheless, indirect benefits of the plan include further lowering delinquency rates and alleviating bank losses to a modest degree.”
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After spending their entire career in the “accumulation” phase of wealth building, retirees who then have to transition into the “decumulation” phase — spending down their assets with no additional employment income — is a source of stress for nearly half of American retirees. This is according to a study conducted by the Alliance for Lifetime Income . The study used a targeted respondent pool of 2,516 people between the ages 45 and 75. The majority of respondents singled out inflation and the cost of living (82%) as the key issues impeding their retirement savings plans. Health care costs came in second at 70%. But the decumulation phase is a clear source of anxiety for retirees, the results of the survey explained, since it involves acting in the opposite way about finances when compared to a disciplined savings plan that may have been in place for decades. “Not having a clear plan for drawing-down savings and knowing how to generate income in retirement are major contributing factors to people’s anxiety,” the survey results explained. “Alarmingly, fewer than a third of respondents (32%) said they have a specific income plan in place for retirement. 41% said they don’t know how to stage withdrawals from their accounts, and fewer than half (49%) know how to handle required minimum distributions or minimize taxes, both essential pieces to sound retirement income planning.” Three tasks emerged for respondents as nearly equally difficult or confusing when it comes to creating plans for retirement spending — prioritizing what to spend money on, determining how much must be set aside to cover health costs, and how to optimize a pattern of withdrawals from accounts. Adding to the anxiety for many older Americans is the poor condition of the Social Security trust fund and the lack of political will from lawmakers to adequately address an expected 2035 shortfall in benefit payments. “Over a third (37%) of consumers have already started claiming Social Security, with 67% saying they did so because they are disabled or needed income, while 28% started early withdrawals out of fear Social Security will not be available or their payments will be cut, or they will die before reaching full retirement age,” the survey results stated. The decision to begin claiming these benefits is primarily based on personal judgment. Nearly three in four (73%) of respondents decided on their own to begin claims compared to only 9% who did so on the advice of a financial adviser. Jean Statler, CEO of the Alliance for Lifetime Income, emphasized the emotional issues that could stem from realizing that a paycheck from work is no longer coming and being “left with a lump-sum of money that has to last for what could be 20, 30 or more years,” she said. “If there’s just one thing you can do to prepare and lower your anxiety, it’s having a clear retirement income plan,” Statler said. “And the most important thing in that plan is having enough protected income between Social Security, annuities, or a pension, to cover your basics — those essential expenses you have to pay for like housing and food.”
The trend line for mortgage rates has been the same for several weeks, even as some of the uncertainty surrounding the 2024 election is fading. The cost of a home loan continues to move in a negative direction for U.S. consumers and housing professionals alike as the downward movement that started in August has been erased entirely. At HousingWire’s Mortgage Rates Center on Tuesday, the average rate for 30-year conforming loans was 6.99%. That was up 4 basis points (bps) from a week ago and 75 bps higher than when rates bottomed out in late September. Meanwhile, the 15-year conforming loan rate — which had been as low as 5.57% less than two months ago — stood at 6.98% on Tuesday. The pace of increases is moderating. “Mortgage rates are expected to be lower today as bond yields have been decreasing throughout the night and early morning, slightly dropping further following the recent softer housing starts data,” HousingWire Lead Analyst Logan Mohtashami wrote on Tuesday.
Homebuyers who are part of Generation X — primarily born between the mid 1960s and the early 1980s — should keep accessibility features in mind as they approach retirement, since Americans are increasingly looking to age in place in their own homes once their time in the workforce is complete. This is according to a recent article at the Boston Globe that took a closer look at the kinds of homes that those currently in their mid-to-late 50s may want to prioritize as they look to the future. Not only is it a good idea to think ahead for themselves, the article explains, but many members of Gen X are also a part of the so-called “sandwich generation” where they may be taking care of both their own children, and their parents simultaneously. “So for those considering moving out of the homes where they raised their children, there are some key boxes to check to make living in their next house easiest for everyone,” the story said. The biggest aspect to keep in mind is the one that could make the biggest accessibility difference, and that is keeping the house confined primarily to a single floor. “In most of our remodeling, we use a design technique called Universal Design,” said Brian Harvey, owner of Boston-area business Harvey Home Modifications . “That essentially is a design that will serve anyone of any physical capability in the house.” Keeping in mind what is not needed is also a useful exercise, he said, and ensuring that door frames are wide enough to accommodate wheelchairs could be beneficial for any current or future wheelchair users that do, or will, reside in the home. Bathrooms are also a major focus, since they can often serve as common sites for falls or other accidents since slippery, wet surfaces can be easy to find. “If the home you’re hoping to buy doesn’t have the accessibility you’re looking for, you’ll want to check with a contractor to see what kind of renovations are possible,” the story said. One of the ways the reverse mortgage industry has aimed to position the potential value proposition for prospective borrowers is by the ability to use the loan proceeds to fund home modifications. The U.S. Department of Housing and Urban Development (HUD) has also given attention to home modifications specifically for aging in place. This past summer, the department greenlit a new round of grant funding specifically to assist more older Americans with aging in place. Reporting earlier this year by the Associated Press (AP) also tracked the increasing desire of older Americans to remain in their homes for longer, illustrating how they were increasingly “splurging” on home modifications to better fashion their living spaces for later life’s natural mobility limitations. Home improvement retailers have also taken notice, with The Home Depot refreshing an in-house brand with accessibility in mind for things like grab bars and easier-to-use faucets. In 2021, Lowe’s established a single stop for items including wheelchair ramps and shower benches, the AP reported.
