New Government Refinance Program Supporting Performing Borrowers
For borrowers who haven’t been able to take advantage of today’s interest rate environment due to declining property values and erosion of equity, there may soon be a solution. The Federal Housing Finance Agency (FHFA) just announced today that it will expand eligibility for the Home Affordable Refinance Program (HARP) to include more Fannie Mae and Freddie Mac borrowers who have been making payments, but may have very little equity or even owe more than their house is worth. The HARP program has already helped ~900,000 borrowers refinance and the FHFA expects this guideline enhancement will substantially increase the number of qualified borrowers. Some estimate over 10 million households could now be eligible to refinance. FHFA’s goal here is two-fold: By allowing these borrowers to refinance, not only is the financial position of these existing borrowers improved, but the borrowers are more able to continue to make mortgage payments which will help Fannie Mae and Freddie Mac. Details regarding implementation are planned to be announced on Nov 15, at which point lenders will start to build out how to pass this through to borrowers. President Obama is expected to announce these changes later today.
Over the past few weeks, seen some of the impact of the Federal Reserve’s latest stimulus plan (dubbed ‘Operation Twist’). Since implementing that plan, the Fed is now gobbling up about $1 billion of the $2 billion in daily mortgage-backed securities volume. That being said, some Fed officials have pointed to additional asset purchases being needed in order to truly boost the economy. In the meantime, with nearly half the supply being purchased by the Fed, mortgage rates have maintained a fairly consistent level, with most of the volatility being driven by news abroad. Domestically, we did see an improvement in jobless claims late last week that did provide some economic optimism.
The investor trend over the past couple weeks has been a slow move away from U.S. Treasuries in favor of equities, with many relying on movement among European leaders to help quell their debt crisis. Although there is a united front to solve the debt crisis and bring stability back to the 17-nation union, we still don’t have a full picture around what action will be taken with both Greece and other ailing nations. We know from news over the weekend that leaders outlined some of the basics, which included avoiding tapping into the European Central Bank in order to build their rescue fund. If current talks turn into further positive action to aid the region, you can expect rates to inch upward as more investment returns to the region, leaving the current safety of U.S. Treasuries.
Tomorrow S&P will release their Home Price Index report for Aug. Expectation is for a very small improvement which may create positive buzz around housing going forward. We also have numerous other economic reports due out later this week, including Home Sales, GDP and Unemployment, and September Spending Reports. There is a glimmer of hope after last week’s movement both here and abroad. If these reports begin to disappoint expectations, you should see rates fall as investors pull back once again toward safer investment options.