It appears that the FHA is closer to announcing a new FHA Short Refinance Program that would help borrowers who are underwater on their mortgages to refinance. According to a story on Housing Wire today, HUD secretary Shaun Donovan addressed the National Association of Real Estate Brokers this week, and said the agency would soon be implementing such a program.
Per the article, the FHA has insured 30 percent of purchase mortgages and 20 percent of refinance mortgages in the last 18 months. This is obviously a huge chunk of the market, and makes the FHA especially susceptible to foreclosures caused by price declines. FHA is the main avenue for first time home owners and those without much money for a down payment to get a mortgage.
There are no specifics as to how this new program would work, and how this program would differ from (and be more effective than) the Home Affordable Refinance Program (HARP) which was designed to serve a similar purpose. We will have to wait for the official statement from HUD to learn more. Donovan promised it would be coming soon.
Donovan was quoted in the article as saying “By lowering the barriers to principal write-down, the vast majority of the burden of writing down these loans will fall where it belongs: on lenders and investors, not on the taxpayer”. This is a refreshing statement from the government, as it would be nice to see some of the costs of the recession be laid at the feet of those institutions who took risks and effectively passed them off to taxpayers when they went bad. We will see if they actually mean it or not.
There had been some rumblings in the blogosphere that there would be some sort of “August Surprise” from the government, some sort of mass refinancing of Freddie and Fannie borrowers. The idea was dismissed by the Obama Administration, and the efficacy of such an idea was blowed up by Calculated Risk’s Tom Lawler here (the post is a case study in how to take apart an argument, I recommend checking it out).
What do you think about this plan? Does it make sense to do something like this, or are we pushing the rock up the hill only to watch it roll back down? Let me know in the comments section below.
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