Florida, with its struggling economy and backlog of foreclosures, could be a main beneficiary of a revamped mortgage refinancing program announced Monday.
The new Home Affordable Refinance Program is designed to make it easier for borrowers with underwater mortgages to take advantage of today's historically low interest rates.
The desired outcome: Lower monthly mortgage payments means more people can stay in their homes — and out of foreclosure. It also means more money in people's pockets to pump into the economy.
Earlier, more restrictive rules prevented many homeowners, especially those who bought during the height of the real estate boom, from benefiting. The revamped program has fewer restrictions.
University of Central Florida economist Sean Snaith said the announcement is the "first sensible housing policy" he has heard in some time and could give the sagging economy a boost.
As of the end of June, more than 314,000 Tampa Bay area homeowners owed more than their homes were worth, according to mortgage research firm CoreLogic. Forty-five percent, or 1.9 million, of all mortgages in the Sunshine State are underwater — the third highest in the country.
"This is a step in the right direction," Snaith said. "It holds some promise. This will free up disposable income."
Here are some questions and answers about the Obama administration's initiative:
What is the program?
The Home Affordable Refinance Program, or HARP, was started in 2009. It lets homeowners refinance their mortgages at lower rates. Borrowers can bypass the usual requirement of having at least 20 percent equity in their home. But few people have signed up. Many "underwater" borrowers — those who owe more than their homes are worth — couldn't qualify under the program. Roughly 22.5 percent of U.S. homeowners, about 11 million, are underwater, according to CoreLogic, a real estate data firm. As of Aug. 31, fewer than 900,000 homeowners, and just 72,000 underwater homeowners, have refinanced through the administration's program. The administration had estimated that the program would help 4 million to 5 million homeowners.
Why did so few benefit?
Mainly because those who'd lost the most in their homes weren't eligible. Participation was limited to those whose home values were no more than 25 percent below what they owed their lender. That excluded roughly 10 percent of borrowers, CoreLogic says. In some hard-hit areas, borrowers have lost nearly 50 percent of their home's value. Another problem: Homeowners must pay thousands in closing costs and appraisal fees to refinance. Typically, that adds up to 1 percent of the loan's value — $2,000 in fees on a $200,000 loan.
What changes is the administration making?
Homeowners' eligibility won't be affected by how far their home's value has fallen. Some fees for closing, title insurance and lien processing will be eliminated. The number of homeowners who need an appraisal will be reduced. Some fees for those who refinance into a shorter-term mortgage will also be waived. Banks won't have to buy back the mortgages from Fannie or Freddie, as they previously had to when dealing with some risky loans. That change will free many lenders to offer to refinance loans. The program will also be extended 18 months, through 2013.
Those whose loans are owned or backed by Fannie Mae or Freddie Mac, which the government took control of two years ago. Fannie and Freddie own or guarantee about half of all U.S. mortgages — nearly 31 million loans. To qualify for refinancing, a loan must have been sold to Fannie and Freddie before June 2009. Homeowners can determine whether their mortgage is owned by Fannie or Freddie by going online: Freddie's loan tool is at freddiemac.com/mymortgage; Fannie's is at fanniemae.com/loanlookup. Mortgages that were refinanced over the past 2½ years aren't eligible. Homeowners must also be current on their mortgage. Perhaps the biggest obstacle: It's voluntary for lenders.
Will it work?
For those who can qualify, the savings could be significant. If, for example, a homeowner with a $200,000 mortgage at 6 percent can refinance down to 4.5 percent, the savings would be $3,000 a year. But the benefit to the economy will likely be limited. Even homeowners who are eligible and who choose to refinance through the government program could opt to sock away their savings or pay down debt rather than spend it.
Although the program doesn't reduce the principal of the loan, it could put hundreds of dollars each month into homeowners' pockets.
For example, Alan Lucas, a senior loan officer at BB&T in Tampa, said a homeowner who paid $250,000 with a 6 percent interest rate in 2007 could trim the monthly payment from $1,499 to $1,193 under the plan.
He urges homeowners to call their lenders to see if their loans are owned by Freddie or Fannie. He expects it will take about 30 days before lenders see an increased interest in the plan.
"It's a great deal," he said. "This will help."
How many homeowners will be eligible or will choose to participate?
Not entirely clear. The government estimates that up to 1 million more people could qualify. Moody's Analytics says the figure could be as high as 1.6 million. Both figures are a fraction of the 11 million or more homeowners who are underwater, according to CoreLogic, a real estate data research firm.
Who will benefit most?
Underwater homeowners in the hard-hit states of Arizona, California, Florida and Nevada could be greatly helped. Many are stuck with high mortgage rates after they were approved for mortgages with little or no money as a down payment and few requirements. The average annual savings for a U.S. household would be $2,500, officials say.
When will it start?
Fannie and Freddie will issue the full details of the plan lenders and servicers on Nov. 15, officials say. The revamped program could be in place for some lenders as early as Dec. 1.
Florida Bankers Association chief Alex Sanchez said his only concern with the announcement is that federal regulators could make banks increase their cash reserves in order to restructure the troubled loans.
"The regulators have to be on board," he said. "Overall, I see this a positive step that could help people. This will get homeowners back over water."
Times staff writer Mark Puente contributed to this report.