Obama recently announced new changes to HARP (Home Affordable Refinance Program) which have been heralded as much needed help for underwater homeowners. So will this really help and how will it effect real estate investors?
The new changes to HARP aim to make it easier for underwater homeowners to refinance their homes at today’s lower mortgage rates. These changes include eliminating the limit on the amount of negative equity of a homeowner can have and the need for an appraisal in some cases. However, on the downside, in order to qualify homeowners must be current on their mortgages and cannot have had any late payments in the last 6 months and only a maximum of 1 late payment in the last 12 months.
Obviously this means that these changes are only designed to help those who aren’t really in a distressed situation and likely don’t need the help anyway. Clearly the real ambition here is not to bail out homeowners who are at risk of losing their homes or slow down the rate of foreclosures but to try and spur retail spending by putting extra money in the pockets of homeowners. Unfortunately common sense says that those who have managed to remain in good financial shape by being wise with their money won’t be running out to blow the extra money they can save by refinancing.
However, there are a few concerns that have arisen out of some of the other provisions that are a part of the new HARP changes. This includes incentives for high risk borrowers to take shorter term loans which could come with higher payments, putting them under further strain and motivating lenders to make more loans by waiving buy-back clauses. Anyone in the business knows that this will only encourage more predatory lending and mortgage fraud. Could it be that the Obama administration has become so desperate to boost the economy before the next election that they encourage this type of behavior? Isn’t that what got us in this mess in the first place?
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