Eligibility for home refinance program expanded
The Obama administration eases rules, lifting the maximum loan-to-value ratio to 125%, in an attempt to make refinancing available to more people whose homes are worth less than their mortgages.
By Tom Petruno and E. Scott Reckard
July 2, 2009
Reporting from Washington and Los Angeles — The Obama administration eased eligibility rules Wednesday for its Home Affordable Refinance program, lifting the maximum loan-to-value ratio to 125% from 105%.
The shift, which regulators had hinted was coming, is aimed at making refinancing available to more people whose homes are worth less than their mortgages.
HARP is open to homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac, the mortgage finance giants now under government control. It covers first mortgages only.
The refinance program, launched this year, has gotten off to a slow start, in part because the maximum 105% loan-to-value ratio was too low to include many homes that have fallen sharply in value.
The new 125% maximum means an eligible homeowner with a $375,000 mortgage can refinance if his or her house is worth at least $300,000. But the borrower still must be able to afford the new loan. Income requirements are an increasing problem as unemployment soars and many workers are dealt pay cuts.
Treasury Secretary Timothy F. Geithner said the move to raise the loan-to-value limit was "a crucial step in our broader efforts to get America's housing market and economy on the path to recovery."
But refinance activity in general remains vexed by the jump in mortgage rates from their generational lows in April. Refi applications to lenders have tumbled since mid-May as rates have surged, according to Mortgage Bankers Assn. data released Wednesday. Despite a down-tick in rates in the last two weeks, refi activity hasn't rebounded.
Refi applications fell 30% last week from the previous week, to the lowest level since November. Purchase applications fell 4.5%, according to the report.
The average contract interest rate for 30-year fixed-rate home loans decreased to 5.34% from 5.44% a week earlier. For 15-year fixed loans, the rate averaged 4.81%, down from 4.93%. The average upfront fees known as points, including the origination fee, edged up to just over 1%.
The 30-year fixed rate bottomed out at 4.61% in late March, the lowest level since the mortgage group started keeping track in 1990.
The recent rate trends may delay the arrival of a solid housing recovery, Federal Reserve Bank of San Francisco President Janet Yellen said in a speech Tuesday.
"I am concerned that mortgage rates, which have risen of late, could place a drag on a still sick housing market, potentially driving home prices still lower and pushing more borrowers into foreclosure," she said.
