Obama Administration: Millions to Get Refinance at Favorable Terms

Most were expecting the President to announce a breakthrough in the AG negotiations with the major lenders over robo-signing in his State of the Union.  That announcement did not come.  Instead the President Obama announced a program to help more homeowners refinance to today’s low interest rates in order to save about $3000 per year per household. While he did not detail the process to be used it is anticipated that the new program will extend the current HARP refinance program with the addition of banks and investors who hold loans that are not guaranteed by Fannie Mae or Freddie Mac.

Second mortgages and major expenses such as medical bills will also be taken into consideration in determining eligibility for a HAMP modification. Investor properties will also be considered for modification under the revised program.  The HAMP deadline has also been extended through 2013.

A Treasury spokesperson, Tim Massad, indicated that other housing-related programs that are being actively pursued at this time are the bulk rental program for foreclosed houses and helping hard-hit states to provide targeted relief programs.

A fee on large financial institutions is expected to pay for the expanded HARP program.  Analysts estimate that the enhanced HARP program will cost $10 billion and will reach 2 to 3 million households.  The HARP program will not help the approximately 4.1 million borrowers who are already late on a mortgage.

Obama also announced the formation of a Financial Crimes Unit to crack down on fraud schemes. The new watchdog on financial activity is Richard Cordray the new director of the Consumer Financial Protection Agency. Attorney General Halder is also being asked to form a task force to help prosecute financial fraud cases.

Paul Dales, senior economist with Capital Economics, does not expect the expanded program to have much impact on the economy—possibly a .1% increase in GDP.  Experts do not believe Republicans will be in favor of the expanded HAMP plan, and that may put the hammer to the President’s new plan.  It is likely, however, that the Administration will find other housing-related strategies that will not require Congressional approval if their programs continue to be thwarted by a divided Congress. Dales and other economists have accused the Obama Administration of “tinkering at the margins” of the real problem.