Who Does the President's New Mortgage Plan Help?

The Obama administration has revamped the mortgage refinancing program in an effort to help more than one million homeowners take advantage of the record low interest rates regardless of the current value of their home. The new plan was announced on Monday and it could be a huge step in stabilizing the housing market, but some economists say more is needed.

The new plan extends the help that a previous plan – HARP – offered. Instead of only helping homeowners who have fallen behind on their mortgage payments, the new guidelines are designed to help homeowners who are current on their payments but are ineligible for refinancing their loan due to the lack of equity that they have built up in their home. The new plan is also designed to help homeowners who owe more on their homes than its current market value.

President Obama, when making his announcement, stated that most underwater homeowners can only refinance with their original lender. Unfortunately, some of the lenders refuse to refinance these loans for various reasons. He went on to say that the changes will encourage lenders to compete with each other for the business of homeowners by offering better mortgage rates and terms.

One of the high-ranking officials with the Center for Economic and Policy Research told CBS News that the program would be “very good” if it ended up helping 800,000 homeowners refinance their current mortgage. But he also said that it probably wouldn’t be enough to make a huge difference in the overall economy. Edward Pinto, a housing analyst, said that the plan will mostly help borrowers who owe less on their mortgages than their home’s current market value and it is not going to make a huge difference for homeowners who are “underwater” on their homes. He cited numbers that showed only about a tenth of the homeowners who refinanced their loan through the HARP program were actually underwater on their mortgage loans.

Under the extension of the current program, qualifying borrowers would need to be current on their mortgage payments that are owned or guaranteed by either Freddie Mac or Fannie Mae. Right now, more than 10 million homeowners owe more on their mortgage loans than the current market value of their home. HARP was started over two years ago in hopes of helping 5 million borrowers with their mortgage payments, but fewer than 900,000 were actually helped by the program. But with the expanded program, that number could double by the end of 2013.

With the presidential election just over 12 months away, this expansion of the existing program may provide a small victory for President Obama that he can carry at least for the next few months. With the Republicans criticizing his handling of the economy, unemployment and other important issues that Americans are concerned about, this is something that has to be a success to help drum up support for his success in the 2012 election.

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