The Obama administration's ongoing efforts to stem the tide of foreclosures has left one group of homeowners frustrated: those who are not behind on their mortgage payments and want to refinance but, due to falling home values, are "underwater" on their loans. In other words, these borrowers owe more than their property is worth.

Until now, the Home Affordable Refinance Program (HARP), limited to homeowners with loans backed by Fannie Mae, have been able to refinance into more favorable loan terms only if their loan-to-value ratio was up to 105%. Starting September 1, Fannie Mae will refinance for homeowners up to a 125% loan-to-value (LTV) ratio.

"This step aims to reach even more borrowers who would benefit from a lower payment," said Michael J. Williams, President and Chief Executive Officer. "Many borrowers in good standing have been shut out from the benefits of refinancing due to significant declines in property values across the country. By broadening the scope of the initiative, more borrowers will experience savings on their monthly mortgage payments and have a better chance of sustaining homeownership over the long term."

Previously, HARP allowed for refinancing of Fannie Mae loans with LTVs up to 105 percent. With the expansion, loans with LTVs above 105 percent and up to 125 percent will be eligible for refinancing through the company's Refi Plus manual underwriting option. For loans with LTVs above 105 percent, borrowers must refinance through their existing servicer and the new loans must be fully amortizing fixed-rate mortgages with terms greater than 15 years up to 30 years.

So many homeowners have been unable to participate in the programs meant to save them from foreclosure that it remains to be seen whether this program can stop families from sliding into foreclosure.

But I wonder ... is this is a necessary government program? When my family was "underwater" and owed more on our home than it was worth, we just kept paying off our debt and waiting until the combination of an improved real estate market and our payments finally shifted the balance until we were able to build equity. I'm not sure that I see why this time around these homeowners are being allowed to refinance and therefore borrow more money than their asset is worth. Government intervention like this helped create the mess we are in now.

Labels: Home Affordable Refinancing Program Expanded