Undeterred by the underperformance of several previous efforts at mortgage refinancing, the Obama Administration has announced yet another plan designed to refinance the “underwater” mortgages of homeowners who owe more on their mortgage than their houses are currently worth.
However, this version of the Home Affordable Refinance Program (HAMP) has many of the weaknesses of previous versions, and it is unlikely to be any more successful. To matters worse, the cost of the refinanced loans will be borne by Fannie Mae and Freddie Mac, which the government already controls. This will add to the eventual cost of bailing them out. So far, the two have received about $160 billion of taxpayer money that we may never get back.
HAMP was announced to great fanfare in 2009 with promises that it would assist 4–5 million of the roughly 11 million underwater mortgages. It followed several other unsuccessful plans by Congress and the Bush Administration. However, to date HAMP has helped about only 900,000 homeowners in total and only 72,000 of underwater homeowners.
The latest version promises to help borrowers who have paid their mortgages for at least six consecutive months—regardless of both their current financial situation and how far the value of their home has fallen. Mortgages must be current with any homeowner who has a late payment in the last six months or more than one late payment in the last year being ineligible. The mortgage cannot have been refinanced in the last 30 months. New appraisals will not be necessary, and title insurance will automatically transfer to the refinanced mortgage. This means that the fees for these services and certain others will not be charged, thus reducing the cost of the new loan.
However, only mortgages that were bought by Fannie or Freddie before June 2009 are eligible. Just like previous HAMP incarnations, these details are either hidden or not in the publicity surrounding the revised program. Thus, many homeowners with underwater loans are likely to go through the application process only to find that their mortgages do not qualify for the revised program.
Just like previous versions, the revised version of HAMP is likely to disappoint thousands more homeowners with problem mortgages than it actually helps. What is worse, taxpayers will have had another failed bailout added on their tab, as they will eventually end up paying the cost of those mortgages that do get refinanced.
