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The 2011 Economic Stimulus: Mortgage Refinancing

This article was written by in Real Estate and Home. 12 comments.


The American Reinvestment and Recovery Act of 2009, the 2009 economic stimulus bill, provided an opportunity for homeowners in trouble to qualify for mortgage modifications. The Home Affordable Modification Program (HAMP) and the “Making Home Affordable” provided support for lenders who worked with homeowners.

Part of the requirement for qualifying for the modification program is for borrowers to have missed a number of payments. This put homeowners who could benefit from the program, in trouble but not yet delinquent, in a tough position. They would need to skip payments, even if they could pay, ruining their credit in the process. In addition, lenders made it difficult to qualify, with understaffed departments handling the cases, a lack of communication, mixed messages from customer service, and overall disorganization.

Mortgage RefinanceA more pressing problem with HAMP was that borrowers were required to owe less than 125% of a home’s value — and in a tough market where home values were falling, it was much easier for a homeowner to find himself in that position — and to have a high credit score.

Without HAMP delivering the desired effect, the Obama administration is looking at improving the concept as a part of the latest economic stimulus package. A third round of quantitative easing is unlikely to gain wide support, at least not in that form, so the federal government is looking for ways to reduce the risk of a second recession, a double-dip recession, or any other type of economic problem.

The Obama administration is seeking feedback on a new round of stimulus designed to help more homeowners qualify for a mortgage refinance. After a decade of lax lending standards, following the recession and credit crunch they have tightened, making it difficult for consumer with marginal credit histories — or even something not too out of the ordinary, like self-employment income without W2 income — to qualify. The new program will seek to allow more homeowners to refinance at a time when mortgage interest rates are very low.

Another aspect of this program would take federally-owned housing and convert the buildings into rentals, turning them over to investment firms to manage.

The plan could actually help pay down the deficit, as there are unspent funds that have been set aside for stimulus:

The idea is appealing because it would not necessarily require Congressional action. It also would not tap any of the $45.6 billion in Troubled Asset Relief Funds that was set aside to help struggling homeowners. Only $22.9 billion of that pool has been spent or pledged so far, and fewer than 1.7 million loans have been modified under federal programs. But Andrea Risotto, a Treasury spokeswoman, said whatever was left would be used to reduce the federal deficit.

Photo: Tom Hilton
New York Times

Published or updated August 25, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 12 comments… read them below or add one }

avatar Money Beagle

We’re a middle class family that is above the income thresholds to even consider looking into any of these programs. At the same time, our home has lost so much value that our hands are tied as far as qualifying for a traditional re-finance due to the loss of equity that we have. I think the government could actually get a lot of bang for their buck by targeting families like us for this type of program. The additional purchasing power to the economy would be enough to kick start and offset the program. But this would never ever happen, still it’d be nice to dream.

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avatar wylerassociate ♦162 (Cent)

The Obama Administration did a poor job designing the requirements of this mortgage refinancing program which hasn’t made a difference for those homeowners underwater or struggling to make payments. I don’t see this new retooling making a major impact if any at all.

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avatar Jackie

Hm, I hadn’t heard about the new proposed program, so will have to read more about it. I will say though that requiring people to be behind before being eligible for modification makes sense if the argument is that loans should be modified to help people who can’t afford their mortgage payments. If you can still pay then without falling behind, in theory at least that should mean you can afford it. Of course you could be getting behind on other things to pay the mortgage, but clearly in that case something is not affordable.

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avatar shellye ♦107 (Cent)

I have a friend currently in the process of getting into this program, and it’s apparently so time-consuming and cumbersome that she’s tempted to just walk away from the mortgage entirely because it’s easier than trying to get a modification.

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avatar Mark

So after HAMP completelty failed, we should expect HAMP 2.0 to work?

“Another aspect of this program would take federally-owned housing and convert the buildings into rentals, turning them over to investment firms to manage.”

Sounds like this could turn into a boondoggle benifiting those who have close ties to elected officials

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avatar Barb Friedberg

Flexo, As one who has just completed a grueling 4 month purchase of a short sale property and relocated to an area replete with sellers underwater-something definitely needs to be done. Unfortunately, the entire housing industry is so mired in confusion, that the answer is certainly not clear cut. This economy will have difficulty rebounding while there are so many homeowners unable to pay their mortgages.

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avatar Randal Marksberry

I have said this for years, the banks ,on’t want to work with people, who can make their payments, and are underwater, to give them a lower rate, and yet you can’t apply for the making home affordable if you fall behind in payments go figure. They put you in a catch 22, and when they ruin your credit they turn around and take you out of the economic purchasing boom. So all they have to do, is give everybody a lower interest rate say 3.5%, wether you are underwater or not, if you decide to stay where you are, but they won’t do that, because they don’t want to loose the revenues, and hurt their shareholders, whom by thw way are mostly the CEO’s of the banks, screw the share holders, this and only this will help us get out of this mess. I am going through it as we speak with B>A>C, so yeah it has been months, and I have yet to hear anything but give us another 2 -3 weeks, and we should have someone get in touch with you. Then you wonder why people throw the *&^%$() keys in the floor and walk away…I am about to myself….

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avatar jim

Last I heard HAMP had helped over 500,000 people get permanent modifications to their loans. Maybe thats not 4 million or 8 million but its still 500,000 people who didn’t lose their homes to foreclosure and 500,000 fewer foreclosures dragging down the housing market.

If they make it easier for more underwater people to refinance then that should help more people. I’m for it.

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avatar qixx ♦1,880 (Half-Dollar)

“Another aspect of this program would take federally-owned housing and convert the buildings into rentals, turning them over to investment firms to manage.”

The government wants to turn these over because they are not profitable. Unless they are admitting they have poor management i don’t see how these rentals can be profitable for someone else without making them unaffordable for the lower income families that occupy them. Is there something i am missing here?

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avatar B Kelly

What if I had a property which is free of mortgage. Will I still be able to refinance it to free up some cash under this program? Might need a small amount of equity (approx 30% of my current home value) to sort out some higher interest debts..thanks

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avatar Ryan B

There were actually two programs. A modification program for people that were behind and could not afford their loan, and a refi program for people who were upside down on (up to 125%) but not late and could afford the mortgage. I refinanced under the latter program to drop my rate by 1%, and while the process took longer than a normal refi, it was less paperwork. They ran a credit check, looked at the home value and that’s about it. One requirement was that the loan was Fannie or Freddie. This excluded most borrowers with non-conforming loans and did not cover the 2nd.

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avatar lynn ♦155 (Cent)

I’m thrilled that we saw warning signs when all the ‘easy’ credit was going on. Being ‘old fashioned’ in our thinking process worked out well for us.

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