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The Daily Need

Obama plan helps more Americans refinance mortgages but underwhelms policy analysts

Faced with a rigid Congress and the stalling of the American Jobs Act (pdf), President Obama has begun the process of unveiling several executive measures aimed at stimulating the downtrodden economy. On Monday in Las Vegas, one of the cities where the housing crisis hit hardest, President Obama announced an overhaul of a government mortgage refinancing program.

The plan expands the Home Affordable Refinancing Program (HARP), an existing but little-used program that began two years ago with the aim of helping “underwater” mortgage owners – those whose mortgages are currently valued at less than the mortgage they are paying off — lower their interest rates. The new plan loosens some of HARP’s restrictions in an effort to encourage more Americans to take advantage of the program. When the program rolled out in 2009, it targeted an estimated 5 million Americans to assist in mortgage refinancing, but to date, fewer than a million people participate in it.

“Say you have a $250,000 mortgage at a 6 percent interest rate, but the value of your home has fallen below $200,000,” President Obama told the Nevada crowd on Monday. “Currently, you can’t refinance.  You’re ineligible. That’s about to change.  If you meet certain requirements, you will have the chance to refinance at lower rates, which could save you hundreds of dollars a month, and thousands of dollars a year in mortgage payments.”

The “certain requirements” that must be met include being employed and being current on mortgage payments. Previously, the program was limited to those whose loans were at most 25 percent larger than their mortgage value, but the new plan eliminates this barrier. Obviously, however, even with eased restrictions, the new plan does not provide assistance to those in foreclosure or those who are delinquent on their payments – the ones with the most need.   

Many observers have noted that any relief or stimulus gleaned from HARP will be modest at best. At the Houston Chronicle, blogger Loren Steffy called the refinancing plan “a little like throwing struggling homeowners a life preserver filled with small rocks or perhaps lead.”

“A mass refinance program is long overdue,” Steffy writes, “and the administration continues to dither with tweaking the HARP program which was supposed to reach 5 million homeowners two years ago and instead has helped fewer than 1 million.”

Obama himself has emphasized that the refinancing overhaul is by no means a solution to America’s housing problem.

“Given the magnitude of the housing bubble, and the huge inventory of unsold homes in places like Nevada, it will take time to solve these challenges,” he said. “We will still need Congress to pass the Jobs Bill – and even then, the housing market won’t be fully healed until the unemployment rate comes down and the inventory of homes on the market comes down. But that is no excuse for inaction.”

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