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The Obama administration recently announced that borrowers with little or no equity in their homes will have yet another year to take advantage of a refinancing program that so far has made little progress.
The initiative, known as Home Affordable Refinance Program (HARP), was set to expire in June. But, so far, it has reached fewer than 200,000 of the up to 5 million borrowers federal regulators hoped it would help.
The program is aimed at the millions of borrowers whose home equity has been diminished by falling home prices, or who owe more than their homes are worth, making it impossible for them to take advantage of historically low mortgage rates. Originally the program targeted borrowers whose loan balances were slightly higher than their property's value. The program was later expanded to include borrowers who owe up to 25 percent more than their homes are worth.
These underwater borrowers are at greater risk of foreclosure, and the administration hoped that lowering their payments would decrease their chances of falling behind.
But the program ran into several problems. Many borrowers were too underwater to qualify and the program was limited to loans backed by Fannie Mae or Freddie Mac, the mortgage financing companies. The initiative was also dogged by delays as lenders struggled to update their computer systems to accommodate the program. Another obstacle was that many homeowners have second mortgages or private mortgage insurance, which can get in the way of refinancing a primary loan.
And for some borrowers, the costs associated with refinancing, such as closing costs, were not worth the lower interest rates, especially for homeowners worried they might lose their jobs or might hit another financial crunch later.
Mortgage rates are at record lows. Home prices are at record lows, and the federal government is offering tax credits for purchasing a home.
Why then should anyone rent?
Home prices and mortgage rates have dropped so much that the cost to own and maintain a house is only a bit more, and sometimes even less, than the cost of renting.
Recently, mortgage rates and home prices are at, or better, than historic averages in 49 of the top 50 home building markets.
Currently, a buyer who qualifies for a mortgage loan can get a monthly mortgage loan payment on a median-priced home at about 15.3 percent of the median family income. The number is far below the 20 percent average from 1991-2008.
However, the key is finding the right market because in some places, home prices remain unaffordable. Some areas however, may be cheaper to buy than to rent.
The federal government’s home buyer tax credit program also makes it advantageous to buy. The tax credit program was passed as part of the government’s stimulus plan. It offers an $8,000 dollar tax credit for first-time home buyers and $6,500 dollar tax credit for existing homeowners looking to upgrade. However, the program is scheduled to expire on April 30. Home buyers are urged to act soon.
At the same time, analysts warn home buyers that if they are planning to buy, stay put for a minimum of five to eight years or risk taking a loss.
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A total of 315,716 U.S. homes were mired in the foreclosure process in January, a 10% decline from foreclosure activity measured in December.
That number is still 15% above the level of foreclosure activity reported in January 2009. The report shows that one in every 409 U.S. housing units last month received a foreclosure filing — default notices, scheduled auctions or bank repossessions.
The sharp year-over-year increase is a sign that a backlog of defaulting properties may now be entering the foreclosure phase after several national and local moratoriums expired last year and the Obama administration’s efforts to provide mortgage relief for thousands of Americans has failed to make temporarily lowered payments permanent.
Default notices were down 12% from the previous month but were up 4% from January 2009. Scheduled foreclosure auctions were down 11% from the previous month but were up 15% from January 2009.
