In an effort to help boost the stagnant economy, the Obama Administration is proposing a new program to help struggling homeowners.
The program, which could help up to 1.6 million homeowners who are currently “underwater” on their mortgage – a situation that occurs when a homeowner owes more on the mortgage than the home is worth – would help more struggling homeowners qualify for the Home Affordable Refinance Program (HARP). To date, HARP has helped less than one-million homeowners.
According to the Fiscal Times, the program will:
- Expand HARP to homeowners whose homes have fallen vastly in value by doing away with the former 125 percent limit
- Extend by 18 months (to December 31, 2013) the HARP expiration date for loans sold to Fannie Mae and Freddie Mac
- Do away with certain fees for homeowners who refinance into shorter-term mortgages
- Lowers fees for certain borrowers
However, other requirements for qualifying for HARP remain in place. For instance, to qualify, homeowners must be current on their mortgage payments and they cannot have had more than one late mortgage payment in the last year.
Janaki Rao, a mortgage strategist at Morgan Stanley, is quoted in Financial Times as estimating that the new program could stimulate the economy by “unleashing a refinance wave”, freeing up (in mortgage payment savings) an estimated $7 billion in cash for homeowners.
However, Celia Chen, an economist at Moody’s Analytics, believes the new program will not, as quote in Financial Times, “help the housing market greatly to get out of its doldrums.” Specifically, she says that the program does not address two of the biggest factors affecting the housing market: unemployment and consumer confidence and the surplus of inventory that is suppressing housing prices.
Even if a homeowner with an underwater mortgage does not qualify for the new program, they may still have options. Because of the current economic situation and high jobless rate, many Americans are behind on their mortgage payments and could use assistance. Chapter 13 bankruptcy could help free up enough cash, through a debt reorganization, to allow a homeowner in arrears to catch up. Speak with an experienced bankruptcy attorney about your situation and to discuss your options.