Experts: Mortgage Loans Refinancing Not Good Enough
The federal mortgage loans refinancing program has produced disappointing results seven months after it was launched to help struggling homeowners who have no or little equity refinance their loans.
So far, the refinancing program has helped no more than 3 percent of its targeted number of struggling borrowers, prompting industry experts to say that the program is not enough to help many distressed homeowners avoid foreclosures.
Experts said that the poor performance of the program is an indication of how difficult it is to help the increasing number of homeowners who owe more on their mortgage than the total value of their houses.
The refinancing program is one of the major components of the federal government’s efforts to abate the growing foreclosure problem, stabilize and strengthen the housing market. However, the refinancing program has received a mediocre public attention compared with its companion program, the mortgage loans modification which motivates lenders to modify troubled loans to make them affordable for borrowers who are at risk of foreclosures.
The refinancing program is geared towards struggling borrowers who owe more on their mortgage than the total value of their homes. The program works on the premise that helping struggling borrowers refinance their loans into affordable terms would save them from future troubles.
The program involves suspending the traditional equity requirement for refinancing in an effort to help them stave off foreclosure. Those who are eligible include homeowners who have loans guaranteed by mortgage financiers, Federal National Mortgage Association and Federal Home Loan Mortgage Corp.
So far, the program has helped nearly 130,000 out of the target 5 million borrowers that the Obama Administration has identified as eligible for the program.
According to market data, one third of the total number of borrowers in the country have mortgages greater than the value of their properties. In Washington, nearly 34 percent of homeowners had zero equity in the first quarter of this year. The problem of lack of equity is more acute for homeowners who took out mortgages in 2007 and 2006, with 60 percent of them having properties that are worth less than their mortgages.
Industry experts said that struggling borrowers do not find mortgage loans refinancing an attractive option because they end up still owing more on their mortgage than the value of their properties and could only regain equity after giving payments for several years.
