During last week’s State of the Union address, President Barack Obama blueprinted his plan to build a stronger, recovered American economy, which involved healing the bubble-burst housing market. This morning, Obama followed up on his word and unveiled more details behind his expanded refinancing program. The new plan, which broadens the administration’s Home Affordable Refinance Program (HARP), offers homeowners with privately held mortgages a chance to refinance their mortgage at record low rates, saving qualified borrowers an annual average of $3,000.
This, of course, isn’t the first time President Obama has taken to programs and policies to encourage a housing recovery. “I’ll be honest, the programs we’ve put forward didn’t work at the scale we’d hoped.. Not as many people have taken advantage of it as we wanted,” Obama said to the crowd gathered at James Lee Community Center in Falls Church, VA. The original HARP program allowed borrowers with Fannie Mae and Freddie Mac-backed mortgages to refinance at lower rates. The Associated Press reports, an estimated 1 million homeowners have used it, a number far below the 4 to 5 million homeowners that was anticipated.
“There are policy limits when it comes to what the President can propose to fix housing, and he was realistic about these limits in his speech this morning,” said Zillow Chief Economist Dr. Stan Humphries. “That’s a lesson he has learned the hard way after setting such high expectations initially for HARP, only to be beaten up when those expectations haven’t been met.”
The new and improved HARP aims to address the estimated 3.5 million borrowers with privately held mortgages who have maintained their credit but aren’t able to qualify for a refi because they’re underwater. “The reality is more refi’s will help homeowners, and we should be helping homeowners, but this policy is not going to materially change the number of defaults that are likely to occur,” continued Humphries. “Most of these are occurring because of a toxic combination of long-term unemployment and negative equity, and a reduction in monthly mortgage payments won’t help many of the people in that situation.”
Despite this added effort from Obama around the housing crisis, the true battleground for this regenerative housing policy lies with the House. This program outlines an estimated cost of $5 billion to $10 billion for which payments would come from a fee on large banks, a tactic Congress hasn’t favored in the past. “The devil is in the details around loan-level price adjustments, mortgage insurance, and put-backs. Being more open to these is the key to getting refi’s into the millions, ” said Humphries. “Unfortunately, Congressional support on this is likely to be very low.”
While subject to a clashing Congress, people care intensely about housing. It will continue to be a keynote issue for campaigning candidates as well as a focus for Obama as his election-year package picks up speed.