Making Home Affordable Program May Help More Underwater Homeowners

June 19, 2009 No Comments »

underwater

The Making Home Affordable program may be further expanded to help more underwater homeowners refinance their mortgages.

Though mortgage rates have crept up in recent weeks, current mortgage rates are more favorable than they have been in the past few years.

However, many homeowners have been unable to take advantage of the low rates thanks to loan-to-value (LTV) constraints, among other things.

The Home Affordable Refinance program currently has a LTV ceiling of 105 percent, meaning even those with no equity or private mortgage insurance can take advantage of the program.

But many borrowers have lost so much equity over the past few years that the FHFA is considering raising that ceiling to as much as 125 percent LTV, according to a Bloomberg report.

Originally, FHFA director James B. Lockhart noted that the line was drawn at 105 percent so loans could be securitized, and also due to capacity constraints.

However, the Obama Administration seems keen to boost participation in the program by easing eligibility, though some argue that it’s too little, too late, as mortgage rates have increased about a point in the past month.

One “mortgage strategist” who spoke with Bloomberg said the enhanced LTV limits could reach another 10 percent of borrowers with Fannie Mae and Freddie Mac loans, but another four percent are even deeper underwater.

Then there are the jumbo loan holders, who still seem to be out of luck, and the private-label mortgages, which tend to carry the highest default rate.

A month ago, Fannie Mae said it received more than 233,000 eligible Home Affordable Refinance applications, with 51,000 having LTV ratios between 80 percent and 105 percent.

Related: How to refinance with negative equity.

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