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  • Latest Obama Mortgage Refinance Plan Another Dud

    Undeterred by the underperformance of several previous efforts at mortgage refinancing, the Obama Administration has announced yet another plan designed to refinance the “underwater” mortgages of homeowners who owe more on their mortgage than their houses are currently worth.

    However, this version of the Home Affordable Refinance Program (HAMP) has many of the weaknesses of previous versions, and it is unlikely to be any more successful. To matters worse, the cost of the refinanced loans will be borne by Fannie Mae and Freddie Mac, which the government already controls. This will add to the eventual cost of bailing them out. So far, the two have received about $160 billion of taxpayer money that we may never get back.

    HAMP was announced to great fanfare in 2009 with promises that it would assist 4–5 million of the roughly 11 million underwater mortgages. It followed several other unsuccessful plans by Congress and the Bush Administration. However, to date HAMP has helped about only 900,000 homeowners in total and only 72,000 of underwater homeowners.

    The latest version promises to help borrowers who have paid their mortgages for at least six consecutive months—regardless of both their current financial situation and how far the value of their home has fallen. Mortgages must be current with any homeowner who has a late payment in the last six months or more than one late payment in the last year being ineligible. The mortgage cannot have been refinanced in the last 30 months. New appraisals will not be necessary, and title insurance will automatically transfer to the refinanced mortgage. This means that the fees for these services and certain others will not be charged, thus reducing the cost of the new loan.

    However, only mortgages that were bought by Fannie or Freddie before June 2009 are eligible. Just like previous HAMP incarnations, these details are either hidden or not in the publicity surrounding the revised program. Thus, many homeowners with underwater loans are likely to go through the application process only to find that their mortgages do not qualify for the revised program.

    Just like previous versions, the revised version of HAMP is likely to disappoint thousands more homeowners with problem mortgages than it actually helps. What is worse, taxpayers will have had another failed bailout added on their tab, as they will eventually end up paying the cost of those mortgages that do get refinanced.

    Posted in Economics [slideshow_deploy]

    11 Responses to Latest Obama Mortgage Refinance Plan Another Dud

    1. Bobbie says:

      so unfair I could just scream! when we bought our FIRST house (no special government attention, no first homeowner government deals) we bought it at a FIXED rate. something available to ALL HOMEOWNERS! we refinanced ONCE to bring that rate DOWN! we are STILL at that rate! sure we've wanted to move and almost did a few times but our earnings didn't let that happen! We remain in our first home!!! Hold the signer accountable to the contract signed and quit with the fraud and special favors at OUR EXPENSE!!

    2. Duncan says:

      Another dud? Wrong. This will be incalculably valuable to most Nevada and Florida mortgage holders.

    3. Always pay my bills says:

      Is it legal to take tax dollars contributed by us all, and then selectively help only a few (i.e. only those with Fannie or Freddie mortgages)? What about those who are current on their non-Fannie/Freddie mortgages, who despite plummeting home-values have hung-in-there and paid their mortgages/taxes on time—do they not deserve a lower interest rate too?

    4. frustrated homeowner says:

      Seriously frustrated about this whole thing!!!! We have never missed a payment but because houses in our community are being forclosed on the value of our home has dropped considerably and now we are backwards in our loan. I think it is outrageous that the ones who are really trying aren't able to take advantage of the lower interest rates availalbe to everyone else. After all, we would be more likely to pour that savings back into the economy and help "jump start" things!!!! :(

    5. Always pay my bills says:

      Nevadians and Floridians beware of Obama's smoke-and-mirrors, his interest-reduction plan is futile unless it is available to ALL the homes in your neighborhood–including mortgages that are not owned by Freddie or Fannie.  To illustrate: Suppose Mr. A's Fannie-mortgage rate is dropped to 3%; Mr. A is delighted  because he is now saving $ each month.  Meanwhile his neighbor Mr. B–who has a mortgage not owned by Freddie or Fannie–is unable to take advantage of the historically low interest rates. Not long after Mr. A's interest drop, Mr. B forecloses on his house, inadvertently driving down the home values in the neighborhood, including the value of Mr. A's home!
      How does Obama's plan look now the smoke has cleared and the mirrors lifted? Not so good eh?

    6. Payday Loans says:

      This new version for refinance will not be welcomed by people as it seems not beneficial.You have shared a good information.Thanks for such post.

    7. Henry Jordan says:

      This is financial engineering at the expense of all taxpayers and mortgage holders who read the fine print, bought homes they could afford and have made sacrifices to stay current. Where is my reward for doing it right?

    8. BritainLoans says:

      The banks and lenders will take a significant loss, at least on paper, insofar as they will suffer as much as a 50% loss ofinterest income compared to their postion if full payments were made on the original
      contract. But this is not enough of a "haircut". These lenders, many unscrupulous, should be forced to lower the principal of the loan to an amount consistient with the current market value of the property. The latter, in practical terms, would not really be a loss. These lenders are blighted by a tendency to put ideology over fiscal reality. In the vast majortiy of these cases they will never be able to collect anything anywere neaer the existing principal balance.. Obama's plan would, in reality, be for the lender's own good

    9. So far this new refinance version seems to be ineffective. It will pour more burden on banks, which could cause increase in interest rates, repo rates and inflation.

    10. Home Loans says:

      The latest Obama Mortgage refinance is another dud

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