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Get mass refinancings right this time

The chart at the top of this page from the Federal Reserve is a stunner. It shows that some 12 million homeowners are underwater on their mortgages -- more than one out of five homes with a mortgage.

We've taken so many calls and emails from homeowners struggling to make good on their mortgages over the past several years. The stories are heart-wrenching. The housing market has plunged in value by about a third since its peak in 2006, a loss of some $7 trillion in value.

A particularly frustrated group of homeowners are those current on their mortgage payments but in desperate need of financial relief. They can't refinance at today's historically low rates because the equity in their home has vaporized.

How many people? There are some 8.6 million homeowners current on their mortgages with a negative equity of $425 billion, according to the Federal Reserve.

Is help on the way? Can it be? President Obama proposed last night a legislative initiative that would let homeowners refinance at low rates. State of the Union The program would give "every responsible homeowner the chance to save about $3,000 a year on their mortgage by refinancing at historically low interest rates," Obama said during the State of the Union address. "No more red tape. No more runaround from the banks."

Really? We've heard this refrain before. The Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP) have been big busts. These programs were introduced with much fanfare and so far have helped few people.

In other words, the devil is in the details of the program. There are signs that the Administration has learned from past blunders. For example, unlike the other initiatives, the refinancing would be available to homeowners without Freddie Mac and Fannie Mae mortgages. A recent white paper by the Federal Reserve -- The U.S. Housing Market: Current Conditions and Policy Considerations -- emphasized the need to make the program simple and efficient. In other words: Let's get the job done.

I hope the brains behind the program have come up with a way to make a mass refinancing feasible -- and quick. Congress should pass a clean bill, too. That may be impossible in an election year, sad to say.

Yet these beleaguered homeowners need a real break, not another false hope. It would also give additional momentum to a still fragile recovery. That's why the Fed urged action of the refinancing front in its white paper. And today's statements by Fed chairman Ben Bernanke on monetary policy make it clear that the central bank is still concerned about the strength and durability of the expansion.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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I couldn't agree more. I work in the loan servicing industry. I've seen how ineffective the HAMP incentive credits are. These rarely given, hard-to-get credits are typically one-time $1,000 payments that cannot be used to pay mortgage payments due, but must to applied to principal. That is, they are tiny equity boosts that don't keep the borrower out of foreclosure, but reduce the amount the lender writes off if they do.

If the government wants to help those in dire straits, they would provide one-time payments of perhaps two months' worth of payments due. This would help the borrower not only with the immediate problem, the wolf at the door, but regroup for the rest of their bills.

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