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New Mortgage Rules Offer Help for Struggling Homeowners

I was in Dallas, Texas last week with U.S. Treasurer Rosie Rios, sitting with her on two panel discussions. In between the panels, we were discussing the mortgage and housing crisis and how the Home Affordable Refinance Program (HARP) hadn't really helped much at all.

Her comment: Watch what happens.

Rumors have abounded that the Federal Government has been back at the drawing table these past few months, trying to retool the Making Home Affordable programs. The biggest problem is that only a very few borrowers have been able to take advantage of the programs - less than 900,000 homeowners have been able to refinance under HARP, including just 70,000 underwater borrowers instead of the millions who need help.

CoreLogic, which tracks mortgage and foreclosure information, estimates there are 20 million homeowners who could benefit from today's historic low mortgage interest rates by refinancing. On average, they would drop their loan interest rate by 1 percent, saving an estimated $24 billion in payments.

According to the Wall Street Journal, President Obama is on his way to Las Vegas, which is Ground Zero for the housing and foreclosure crisis, to announce the details of the new mortgage program:

  • No more appraisals. The new rules eliminate the appraisal requirement, which means that no matter how far underwater your home is, you can qualify.
  • No more extensive underwriting requirements. If you have a slight blemish on your credit history, you should still qualify.
  • You have to be current on your loan. At least, you have to have made the last six payments on time and in full, so if you are behind on your loan - even if the lender told you should stop paying - you won't qualify.
  • Fannie Mae and Freddie Mac will waive some new fees. This boosted up the cost above what it would pay for some homeowners to refinance.
  • An estimated 1 million homeowners should be able to refinance. If they can save at least $200 per month, that's billions of dollars in savings.
But someone has to take a hit. When loans refinance, the underlying investors (in this case, Fannie Mae, Freddie Mac, the big banks and investors as far away as Iceland), take the hit, losing billions of dollars in interest from the higher interest rates.

I don't think there will be too many tears shed for the banks and investors. Unfortunately, since the Federal Government has been the backstop for Fannie Mae and Freddie Mac (to the tune of hundreds of billions of dollars so far), it will be the American taxpayer who foots at least part of this bill.

But it is a way to pump more dollars into the economy. And this economy can sorely use the boost.

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.comand The Equifax Personal Finance Blog, and is Chief Content Strategist at, a community for real estate investors.
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