Obama’s Plan Announced

On Monday, the Obama administration announced a plan which will attempt to help struggling homeowners refinance their mortgages.  Mr. Obama’s plan revamps a federal initiative known as the Home Affordable Refinance Program (“HARP”), which was started in 2009 as one of the first initiatives of the new presidency.  The HARP revamp plan is not connected to the ongoing talks between the federal government and the banks over an appropriate settlement for the robo-signing scandal.  Such talks, it was reported last week, may include an ease on refinancing requirements for loans backed by private investors, in addition to a likely multi-billion dollar settlement.

HARP had previously allowed homeowners with loans backed by Fannie Mae or Freddie Mac (around 20% of all homeowners) who were current on their mortgage payments but who lacked enough equity to refinance to lower their payments without either paying down their mortgage balance or take out mortgage insurance.  HARP was initially limited to homeowners who owed between 80% and 105% the value of their homes.  It did not reach enough homeowners, so HARP was then expanded in mid-2009 to borrowers owing up to 125% the value of their homes.  Still, less than 900,000 homeowners were able to utilize the program to lower their rates; less than 10 percent (around 72,000 homeowners) of those who lowered their rates were between the loan-to-value ratio of 105% and 125%.  In other words, those who needed the help the most were unable to utilize the program.

With Mr. Obama’s announcement on Monday, HARP will no longer have a range of eligible homeowners with a loan-to-value ratio.  Regardless of how underwater one is, so long as you have a loan backed by either Fannie or Freddie, are current on your payments, and have yet to use the program, you will be able to lower your rate.  The Federal Housing Finance Agency (“FHFA”) estimates approximately 1 million borrowers could refinance.

Housing and Economy: Which is the Chicken, Which is the Egg?

On Thursday, several days after Mr. Obama’s initiative was announced, researchers from the Carsey Institute at the University of New Hampshire published a report detailing domestic migration, which has slowed to historic lows.  In analyzing data from the  Census Bureau and Internal Revenue Service (“IRS”), the Carsey  Institute said it was clear that millions of Americans are stuck – unable to sell their home, and unsure or unable they could find work elsewhere.

The study was the first which looked exclusively at data from the recession and afterwards, covering 2008 to 2010.  Kenneth Johnson of the Carsey Institute said that, “when times get really hard it gets really hard for people to up and move.”

The study illuminates that even if housing were to recover, people still may be stuck in place given the lack of jobs elsewhere.  And even if the economy were to recover, people may be stuck where they are because of low housing prices or an inability to sell.  While housing has led the country out of previous recessions, it is likely that housing will either follow the economy out, or conditions will need to simultaneously improve for economic growth.