The Federal Housing Finance Agency announced new rules this morning that will allow many more “underwater” homeowners — those who owe more than their homes than they are worth — to refinance at today’s lower rates. The FHFA is estimating that roughly one million borrowers will use the program, which was originally rolled out in early 2009 but failed to have the impact intended. Only mortgages backed by Fannie Mae and Freddie Mac will be eligible.
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The changes to the Home Affordable Refinance Program, or HARP, will serve as the backbone of President Barack Obama’s new housing plan. After Republicans defeated Obama’s $447 billion jobs package and with Congress continually finding itself deadlocked, the president decided to prepare measures to help struggling homeowners that would not require congressional approval, according to one White House official.
The president begins a three-day campaign tour in the west today, where he will discuss his initiative to help homeowners refinance their mortgages while in Nevada, the state hit hardest by the housing crisis. He will also unveil a student loan initiative in Colorado. Both Colorado and Nevada are swing states, and could prove critical in the November 2012 election.
In the past, borrowers who owned more than 25% more than their homes were worth could participate in the FHFA’s program, but now HARP has no cap on how much a borrower owes. Officials hope that reducing the size of homeowners’ monthly payments, they will not only be able to avoid foreclosure, but also spend freed up cash elsewhere, thus stimulating the economy.