Federal Government Rolls out 125% of Value Refinance Program

Real Estate Agent with GreatWest Realty DRE# 00827565

Several news media outlets are reporting the federal government will be refinancing mortgages up to 125% of value.  This move should help some homeowners who desire refinancing in order to take advantage of the current lower interest rates, but find themselves upside-down on value. 

U.S. Housing and Urban Development Secretary, Shaun Donovan announced Wednesday, July 1st, that the federal government's Home Affordable Refinance Program will serve people whose mortgages are up to 125 percent of the value of their homes.

This move would raise the "underwater" loan to value limit on the program from the current 105%.

HUD Secretary Donovan made the announcement wile on a neighborhood tour in Las Vegas, which has been exceptionally hard hit in the current foreclosure crisis, and where approximately 67% of current mortgage holders owe more than their homes are worth.

U.S. Treasury Secretary, Tim Geithner, weighed in on the plan and labeled the move "a crucial step in our broader efforts to get America's housing market and economy on the path to recovery."

HUD reports more than 200,000 borrowers have received offers for trial loan modifications, since February 18th, when the administration announced Making Home Affordable.  This also includes tens of thousands of refinances and trial modifications have began and more than one million possibly eligible borrowers have been sent informational mailings.


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Sandra White
John L Scott Real Estate - Port Townsend, WA
Experienced Residential Resale Broker

It seems to me this type of financing is what made this mess to begin with.  What if these people can't hold on to their homes until prices go up again?  More foreclosures and short sales?  Thanks for the information.

Jul 02, 2009 12:23 AM #1
Ralph Gorgoglione
John Aaroe Group - Los Angeles, CA
California and Hawaii Real Estate (800) 591-6121

Sounds good, but I have to agree along the lines with Sandra.

We need to be very careful about over-compensating and over-leveraging.

I CERTAINLY do not want to end up where we are now again.  I'm going through major burnout from all of the short sale stress I have to go through to keep closing escrows.

Jul 02, 2009 12:29 AM #2
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Sandra - I agree with you to a point.  However, if the people trying to qualify have good jobs, good income and can qualify, I see that it could be a way to stem the foreclosure tide and help us to rebound, with home values following.  The problem in the past was too many unqualified buyers were allowed to purchase homes.  When they couldn't afford to keep them, all Hell broke loose.

Ralph - The genie is out of the bottle for the folks we are now trying to help.  This program is for existing homeowners trying to refinance.  They are already over-leveraged.  It's just a matter of allowing them to keep the same indebtedness, but at lower interest rates, which are currently available.  I actually like the idea, a whole lot better than some plans that have come down the pike.

Jul 02, 2009 12:37 AM #3
Jim Hale
Eugene Oregon's Best Home Search Website

But if the homeowners' loan really amounts to 124.9999% of the current market value of their home, they will have to stay in that home for at least a decade in most markets -- in order to START being in a position of equity.

I say that based on an the market starting up right now and continuing up without decline at the historical appreciation rate of 2 to 3% per year.

(They might just as well go to forclosure...at least under that option they could be into equity in 4-5 years -- having just bought a new home at that point.)

People who make decisions (personal or governmental) based on an expectation that we are going to soon go to some higher annual appreciation rate are truly kidding themselves (and their clients).

Jul 02, 2009 05:15 AM #4
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Jim - There is truth in what you are saying!  However, a foreclosure won't help their credit any, and they won't be able to soon find a position of equity if they are unable to buy another house.  Again, these are folks that are trying to refinance debt they already have - but at a lower interest rate.  This program likely won't help everyone, and we probably aren't headed for higher annual appreciation on homes anytime soon.

However, I remember the last housing downturn in the early 1990s.  It lasted for a few years, but when we did come out of it, prices escallated quite rapidly.  That was here in Sacramento.

Jul 02, 2009 06:41 AM #5
Mike Saunders
Lanier Partners - Athens, GA

Myrl - I read this yesterday and have been chewing it over since. I really don't think that it will be much more affective than any of the previous false starts. It is only applicable to those that are current in their payments and will really not do much for many. I do agree, it may benefit a few with ARMS that are getting ready to adjust. One of the big problems is that a large number of those that have have had loan modifications are finding themselves in the same mess, with redefault rates expected to reach as high as 75%.

Jul 02, 2009 08:51 AM #6
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Mike - That is pretty much the way I see it too!  I had felt for awhile that it was a shame that homeowners who had purchased at or near the height of the market were now being frozen out of refinancing to a current lower interest rates because of declination of home values not of their control.  In essence they were being double victimized by circumstance.  This will possibly help those borrowers.

Jul 02, 2009 09:16 AM #7
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