Millions Of Households Cannot Qualify For Refinancing

Saturday, February 27, 2010, AM | 4 Comments

Refinancing for millions of households is next to impossible for the best interest rates. Statistics show that half of the nation’s borrowers have mortgages with rates above 6 percent even though the average rate on 30-year, fixed-rate mortgages has been about 5 percent for most of the past year, according to research firm First American CoreLogic.

The resulting difference, say from over 6% to 5%, in dollar amount could help the national economy. And the reason is borrowers might have spent some of that money to help the economy. At the same time, saving the rest would have raised savings level as well for their households.

A big criterion for refinancing mortgage

Borrowers usually refinance if they can save at least one percentage point on the interest rate or sometimes half a point under some circumstances, mortgage experts say.

Why millions cannot refinance?

Now there are, we are told, a few reasons why millions cannot refinance their mortgage. The more important one is underwater mortgage. Their homes are worth less than the mortgage they owe and their equity has melted away. These “underwater” borrowers make up about a quarter of all households. National home prices have plunged an average of 30 percent from their peak in 2006.

Some experts suggest, refinance activity should be quite a bit higher than it is, given where rates are right now.

The intention was good

To help borrowers, the Obama administration launched the Home Affordable Refinance Program (HARP) nearly a year ago. HARP program aimed to help borrowers refinance their mortgage with little or no equity in their homes but who pay their mortgage regularly. These underwater borrowers are at greater risk of foreclosure, and the administration hoped that lowering their payments would decrease their chances of falling behind.

The implementation was not good

Yet fewer than 200,000 borrowers have refinanced through this program since its launch in March 2009 – nowhere near the up to 5 million the administration projected to reach by June, when the initiative is to end.

Lenders struggled to update their computer systems (f****** computers) to accommodate HARP. Another obstacle was that many homeowners have second mortgages or private mortgage insurance, which can get in the way of refinancing a primary loan.

Who can refinance?

Most of the people who can refinance today have done so already. Freddie Mac‘s estimate is that 5.8 million borrowers have refinanced since the start of 2009, saving $140 a month on average.

In a Nutshell
We must look at the whole situation in a certain context that has resulted in ripple effect in 2009.

  1. Financial markets in disarray
  2. Home prices falling across the country
  3. Eight-million-plus jobs lost
  4. As a result, not enough people taking out new loans in 2009.

There is a saying in my mother tongue. “A stone falling from the sky will always hit the orphan, the poor, the destitute.” Who else but the lending institutions are in a position to know who the destitute in the U.S. economy is. HARP was properly designed – but improperly implemented – to help folks hit by the stone falling from the sky.

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