A story in the LA Times this morning let us know it's official--what's been rumored for weeks has happened. The Obama administration eased eligibility rules Wednesday for its Home Affordable Refinance Program (HARP) , lifting the maximum loan-to-value ratio to 125% from 105%--making refinancing available to more people (like us here in Nevada!) whose homes are worth less than their mortgages. HARP is open to homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac, the mortgage finance giants now under government control. It covers first mortgages only.
However, the programs has been pretty ineffective in hardest-hit areas because the maximum 105% loan-to-value ratio was too low to include many homes that have lost those most equity. And today's rates are almost .75% higher than they were when the first lucky wave of homeowners refinanced their loans.
The new 125% maximum means an eligible homeowner with a $400,000 mortgage can refinance if his or her house is worth at least $320,000. But the borrowers have to be in good standing on their current mortgage and must qualify for--and pay the costs of obtaining-- the new loan. Income requirements are an increasing problem as unemployment continues trending higher and workers receive pay cuts or pink slips.
Treasury Secretary Timothy F. Geithner said the move to raise the loan-to-value limit was "a crucial step in our broader efforts to get America's housing market and economy on the path to recovery." For a certain group it no doubt is, but I'm betting it's a smaller group than Mr. Geithner believes.
