Federal Regulators Plan to Overhaul Mortgage Refinance Program

Plans have just been revealed for federal regulators to overhaul a mortgage refinance program, and the White House hopes this will help to revitalize the housing market.

This latest overhaul would allow homeowners to refinance their mortgages regardless of whether or not they are "underwater," making this extremely significant for those homeowners in states where property values have fallen sharply, as many are in negative equity and paying high interest rates.

The plan would streamline the refinancing process by eliminating extensive underwriting requirements and appraisals for the majority of homeowners, provided they are up-to-date with their mortgage payments. Mortgage giants Fannie and Freddie would also waive some of the fees which in the past have made remortgaging an unattractive proposition, and it's estimated the average homeowner could save hundreds of dollars a month by refinancing their mortgage.

Federal regulators are looking to overhaul a program which was first implemented two years ago. The Home Affordable Refinance Program was meant to allow borrowers with less than 20% equity to refinance, provided their loans were backed by Fannie or Freddie and was announced by Obama just weeks into his presidency. At the moment just 894,000 borrowers have taken advantage of the scheme, and only about 70,000 have significant negative equity. It is estimated that at least another 800,000 to 1,000,000 homeowners should have been able to refinance under this scheme, especially as officials at the Federal Housing Finance Agency point out it's in everyone's interest to have these homeowners refinance on to lower interest rates and to keep paying their mortgages.

In the past lowering interest rates has proved to be successful for revitalizing the housing market whenever the economy is slowing, but this time around has proved to be slightly different, mainly because homeowners simply haven't been able to refinance. One company, CoreLogic, which tracks around 85% of all mortgages estimates that around 20 million borrowers who still have equity in their homes could benefit by refinancing, and could cut the interest rate by around one percentage point. However some are facing problems refinancing due to today's tougher lending policies, but Goldman Sachs has worked out that if they were to refinance onto thirty-year fixed rate loans homeowners could save around $24 billion annually.

Although details of this new scheme won't be published until the middle of next month, it's predicted lenders could begin to refinance loans as early as December. However loans which exceed 125% of a property's value will not be able to be refinanced until early next year, but the expiration date of this program has been extended until 2013. For more details read the full article from the Wall Street Journal.