The book on mortgage-refinancing help

‘The fear of getting a poor rating is a powerful deterrent...’

Though it was pronounced dead-before-arrival by opponents on Capitol Hill, President Barack Obama’s new mortgage-refinancing package contained far more than legislative proposals. More

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The book on mortgage-refinancing help

‘The fear of getting a poor rating is a powerful deterrent...’

Posted 2/20/12

Though it was pronounced dead-before-arrival by opponents on Capitol Hill, President Barack Obama’s new mortgage-refinancing package contained far more than legislative proposals.

In fact, significant portions of it that have received little media coverage require no prior approval from a hyperpartisan Congress, and could begin affecting consumers within weeks. Here’s a quick rundown on key segments of the housing proposals with a handicapping of their likely impact this year:

• Going nowhere. If you’ve got an underwater mortgage that isn’t owned or guaranteed by Fannie Mae or Freddie Mac, the president’s marquee proposal to help you refinance into a 4 percent mortgage is not likely to be of assistance. The plan’s core concept of funding your rate cut by levying a fee on the largest banks – “based on their size and the riskiness of their activities” – would be a nonstarter politically even if this weren’t an election year. R.I.P.

• Moving fast. Refinancings can be speeded up administratively by key executive branch agencies, and the new program directs them to do so within the next few weeks wherever possible. For example, the Federal Housing Administration will be removing a major barrier for lenders to “streamline” refinancings for current, nondelinquent borrowers who want to take advantage of today’s low rates. The FHA no longer will count streamlined refis – where some standard underwriting requirements are waived – against lenders’ performance ratings on delinquencies. The fear of getting a poor rating is a powerful deterrent for many lenders against doing streamlined refis because they can lose their eligibility to do loans for the FHA altogether. Removing ratings as a barrier should help significant numbers of FHA borrowers get into a better deal.

At the same time, the White House has ordered all the other federal agencies with homebuyer programs to clear the decks for streamlined refis of their existing customers. For example, the Agriculture Department, which runs the third-largest and fastest-growing program – last fiscal year, its loan guarantees funded more than 130,000 home purchases in communities located on the fringes of major metropolitan areas – is expected to waive requirements for new credit reports, appraisals and other documentation for streamlined refinancings. The main requirement for hundreds of thousands of existing USDA borrowers who want to switch to a lower loan rate: Just be on time with your current payments.

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