Charles's Blog

A lot of hoopla recently surrounded the Obama administration’s proposal to enable a segment of homeowners who owe more on their homes than they are worth to refinance at today’s rock-bottom rates.

The limitations are that the homeowners must be current on their loan payments and their mortgages must be owned by private financial institutions. Also nothing will come of the proposal unless Congress passes legislation to implement it.

By contrast, it may be a good time to remind the owners of upside down mortgages whose loans are owned or guaranteed by Fannie Mae and Freddie Mac that an expanded refinancing program is expected to become available sometime in March. And it does not require the approval of Congress.

The plan will implement a series of changes to the Federal Housing Finance Agency’s Home Affordable Refinance Program known as HARP. With the changes that are expected to make the program much more effective, the program is being called HARP II by those in the real estate and mortgage industries. Probably the most significant improvement is that it lifts the ceilings on the amount by which the mortgage balance can exceed a home’s appraised market value. Once, the maximum was 25 percent. Now theoretically the sky is the limit. The most important eligibility restriction that remains is that a homeowner with the upside down mortgage must still be making his or her mortgage payments on time.

However the effectiveness of the program will depend on the willingness of lenders to participate. Their participation continues to be voluntary. Greg McBride, senior analyst with Bankrate.com, an online consumer financing service, said the biggest drawback for lenders in the past has been the possibility that if the refinanced mortgage later defaults the guarantor, whether Fannie Mae or Freddie Mac, will require the lender to “buy back” the loan and cover the loss. Harp II removes some of that possible downfall for the banks, McBride said, by insulating them from taking on the risk that there might have been some mistakes in the original underwriting of the loans.

Since Freddie Mac and Fannie Mae either own or guarantee 70 percent of the residential mortgages in the nation, HARP II could have much more significance than the refinancing program for bank-held mortgages that Obama is sending to Congress. And if it works, it could do a lot of good for areas like the Inland Empire, where in the third quarter of last year CoreLogic reported that almost 44 percent of homes with mortgages were under water. Lowering the monthly mortgage payments of such homeowners would reduce the motivation for them to default and let their homes go to foreclosure.

A whopping 64 percent of people surveyed recently by John Burns Real Estate Consulting agreed with the proposition that it is “a great time to buy.” That isn’t exactly startling since the survey was taken of 20,000 people who were visiting a new home community.

Nonetheless, the survey was able to distinguish three top obstacles to buying a home in today’s real estate market: a bad time to sell an existing home, the need for a down payment, and lack of confidence in the market.

As home building rebounds in California, buyers are expected to prefer a more urban lifestyle rather than a continuation of suburban sprawl, according to some real estate experts. The change already has started in California’s older coastal communities, where infill development is transforming vacant or underutilized land into new housing, says Meea Kang, president of Domus Development LLC and president of the California Infill Builders Association.

Kang will be the featured speaker at the Randall Lewis Seminar Series, 5:30 p.m. Feb. 29. She will discuss the benefits of infill development and the barriers that the movement faces in conference room B at UCR Extension, 1200 University Ave., Riverside. The seminar is free; registration is required: http://or.ucr.edu/event/index.aspx.

Leslie Berkman

Residential Real Estate