Homeowners who owe more on their mortgage loans than what their residences are worth might be able to refinance under a new plan announced by the Obama administration. But, as NPR points out in a recent story, homeowners must meet certain requirements to participate in the program.
The new program seeks to ease the frustrations of those homeowners who are considered underwater, those who owe more on their home loans than what their properties are currently worth. These homeowners typically can’t refinance their mortgage loans to take advantage of today’s low interest rates because most lenders require owners to have at least 20 percent equity before they’ll approve a refinance.
Homeowners who are underwater, of course, don’t have 20 percent equity; they have negative equity.
The new program hopes to change this, giving even underwater homeowners the chance to refinance as long as their home loans are backed by giant lenders Fannie Mae or Freddie Mac. Homeowners must also be current on their mortgage payments to qualify for the program.
The hope is that mass refinancing can help struggling homeowners avoid foreclosure. According to NPR, the average homeowner participating in this program could save $2,500 a year in mortgage payments. With a lower mortgage payment to make each month, these homeowners might feel less of a financial squeeze every time they write a check to their lenders.
The new refinancing plan does have its doubters, of course. The Obama administration’s previous plans to help struggling homeowners — the Home Affordable Modification and Home Affordable Refinance programs — haven’t met the administration’s lofty goals. However, the new program does provide hope to millions of homeowners who watch enviously as their neighbors refinance their home loans to take advantage of interest rates near historic lows.
Anything that can help prevent foreclosure today — during a time in which foreclosures continue to soar — is certainly welcome. Let’s just hope that it works this time around.
NPR: “The Potential Reach Of Obama’s Refinancing Plan,” Chris Arnold, Oct. 25, 2011