For underwater homeowners, there may be new refinance help on the horizon. A new refinance plan was floated in Congress this week. The program would toss a lifeline to underwater homeowners who fall outside HARP and FHA Streamline Refinance guidelines, for example, but whom are otherwise “model homeowners”.
Proposed : “Rebuilding American Homeownership”
There are several ways by which today’s underwater homeowners can access the market’s low mortgage rates. Unfortunately, each requires that the homeowner’s mortgage is backed currently by a government agency.
- For Fannie Mae- and Freddie Mac-backed loans, there’s the HARP Refinance
- For FHA-insured loans, there’s the FHA Streamline Refinance
- For VA-insured loans, there’s the VA IRRRL program
- For USDA-insured loans, there’s the USDA Streamline Refinance
There are millions of U.S. homeowners, though, from Silicon Valley, California to Manhattan, New York, whose mortgages are not backed by one of the above four agencies. Rather, these homeowners’ mortgages are backed by private lenders and smaller banks.
Under the proposed refinance program, all homeowners who are current on their existing mortgage and who meet “ordinary underwriting criteria” would be eligible for new, prescribed mortgage rates — either for a 15-year fixed rate mortgage or a 30-year fixed rate mortgage.
The HARP-like program is titled “Rebuilding American Homeownership”.
RAH : Self-Funding And “Probably Profitable”
To fund its mortgages, the Rebuilding American Homeownership program would rely on a Refinance Trust, backed by the U.S. government and funded via bond sales. The prescribed mortgage rates of the RAH program would be sufficiently low to reward refinancing borrowers, and sufficiently high to mitigate default risk.
The RAH proposal calls for a 2% spread between bond yields and consumer mortgage rates.This spread would render the program profitable under all but the most stressed of financial scenarios.
The RAH trust is expected to pay for itself and turn a profit without have to use U.S. taxpayer dollars.
RAH Endorsed By Economists, NAR
The proposed Rebuilding American Homeownership program has been endorsed by the National Association of Realtors and several well-known economists. The appeal is obvious, too — RAH would bestow mortgage payment relief upon low-risk homeowners without using a dime of taxpayer money.
It’s unclear whether the Rebuilding American Homeownership plan will come to fruition — especially with HARP 3 (#myrefi) getting traction in Congress and with the White House. However, should RAH pass, it would give millions of underwater homeowners access to lower mortgage rates and lower monthly payments.