Obama Refi Proposal Takes Shape in HARP Changes

Federal regulators announced their intentions Monday to expand a refinance program available via ""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/.

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The ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) announced the changes for the ""Home Affordable Refinance Program"":http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx (HARP) alongside the GSEs in separate statements.

Among other modifications, the FHFA said it plans to eliminate a number of risk-based fees for short-term mortgage borrowers, lift the 125-percent loan-to-value (LTV) ratio for loans guaranteed by the GSEs, and void requirements for new property appraisals in lieu of automated estimates.

Borrowers who refinanced their loans before the end of May 2009 also receive a bonus, with federal regulators extending the end dates for their loans to the end of December 2013. The FHFA said Fannie and Freddie will deliver guidance about the changes to lenders and servicers in a few weeks.

""We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,"" FHFA ""Acting Director Edward DeMarco"":http://www.fhfa.gov/Default.aspx?Page=67 said in the statement. ""Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.""

He said that the agency had ""identified several changes that will make the program accessible to more borrowers"" with mortgages backed or owned in full by Fannie and Freddie.

Market watchers around the industry offered reactions that ranged from skepticism to optimism about the HARP program.

""These enhancements to HARP are long overdue, and will eventually facilitate refinancing for the most deeply underwater borrowers, particularly in the hardest-hit

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housing markets,"" ""Greg McBride"":http://www.bankrate.com/blogs/federal-reserve/about-greg-mcbride-cfa.aspx, a senior financial analyst with finance Web site ""Bankrate.com"":http://www.bankrate.com/, tells _MReport_.

""The HARP program continues to be the key to avoiding future strategic defaults by performing borrowers, and it does so without additional risk to the taxpayer,"" he says.

""It's certainly the right thing to be doing,"" adds ""Paul Ashwerth"":http://www.capitaleconomics.com/staff/global-economics/paul-ashworth.html, chief U.S. economist with ""Capital Economics"":http://www.capitaleconomics.com/. ""To get the economy going again, we really do need to solve these structural issues as far as refinancing and cleaning up the foreclosure mess.""

He expresses concerns that more people have not refinanced their loans at lower rates today.

""HARP itself does nothing to turn around the housing market,"" says ""Mark Calabria"":http://www.cato.org/people/mark-calabria, director of financial regulation studies with the ""Cato Institute"":http://www.cato.org/ and a former Senate Banking Committee staffer. ""If anything, it actually lowers home sales, not increases them. It puts more money into people's pockets, but it takes away from investors.""

He says a few factors outside the HARP expansion will play important roles in whether a refinance boom takes place. Homeowners will need to pay out-of-pocket expenses for their home appraisals, he says, and lenders and servicers will first need to agree to the refinance opportunity.

""This is not going to be revolutionary, but evolutionary,"" he says, forecasting that the HARP modifications ""will be modest changes.""

The release caps several weeks of lobbying effort and speculation about the program around Capitol Hill. ""President Barack Obama"":http://www.whitehouse.gov/administration/president-obama/ first pledged himself to the refinance program, which analysts say built on an ""earlier proposal"":https://themreport.com/articles/columbia-professors-propose-refi-boom-for-homeowners-2011-08-18 by two Columbia Business School professors.

Reported pushback from the FHFA met with lobbying and criticism by lawmakers, including ""Rep. Dennis Cardoza"":http://cardoza.house.gov/ (D-California), who recently ""called for DeMarco's resignation"":https://themreport.com/articles/reports-obama-refi-proposal-expected-soon-2011-10-07 in a statement. Sixteen Democratic senators ""called for the implementation of the HARP changes"":https://themreport.com/articles/senators-press-officials-over-mass-refinance-program-2011-10-12 in a letter addressed to the FHFA acting director and several administration officials.

Like lawmakers in the nation's Capitol, analysts speaking with _MReport_ remain divided.

""It will still be a few months before these enhancements become operational, but better late than never,"" McBride says.

Adds Calabria: ""The bottom line is we built more houses than we need. The only way around it is to let the market adjust. The more we put it off, the more painful it will be.""