Shaun Donovan, secretary of the U.S. Department Housing and Urban Development, spoke to The Denver Post about the Obama administration’s recently expanded plan to help homeowners refinance. The program targets homeowners who owe more than their homes are now worth, a situation commonly known as being “underwater.”
Q: How will the newly expanded refinance program work, and how will it help Colorado specifically?
A: The millions of American families that are doing everything right, paying their mortgages and — through no fault of their own because values have dropped in their communities — have been unable to lower their rates from 6 or 7 percent, to 4 or 4 1/2 percent, will get a chance to refinance. For the average family, this means typically a savings of $2,500 a year. That’s like a significant tax cut, because it’s not just one year, it’s every year they pay their mortgage. And it’s particularly important for Colorado. Colorado is one of the states with the largest share of homeowners underwater. Over 20 percent of mortgages in Colorado are underwater.
Q: Will the vast majority of that 20 percent qualify for this program?
A: Well, it’s those who have Fannie Mae or Freddie Mac mortgages and choose to participate, so we wouldn’t expect everyone to participate . . . but Fannie Mae and Freddie Mac make up about two-thirds of mortgages around the country. So it has the potential to reach a large number of people. I would also say many of the innovations that the president announced can benefit a broader group of homeowners as well. One of the barriers for many families has been that they might have a first mortgage and a second mortgage. Even though they could otherwise refinance their first mortgage, they haven’t been able to get whoever holds their second mortgage to agree to the refinancing. But the president announced that we have gotten all the major lenders to agree to automatically resubordinate mortgages. If that innovation is applied not just to Fannie Mae and Freddie Mac mortgages, but becomes an industry standard, then it will help break the logjam for homeowners who may have other kinds of mortgages as well.
Q: So the banks and the mortgage companies are all on board with this?
A: Yes. And in fact, we have public statements from the largest lenders, that they will participate in this.
Q: In Colorado, we do have nearly a fifth of people underwater on their mortgages, but most don’t owe more than 25 percent more than their homes are worth. Why weren’t those people taking advantage of the earlier program?
A: One answer is that they didn’t have the cash to pay for the fees for refinancing. So, one of the key things that we’ve done here is to eliminate the risk-based fees that were being charged before. A second thing is that we’ve lowered the cost of the refinancing by eliminating the need for an appraisal in many cases. We also got an agreement to do bulk title insurance, which will lower the cost of getting title insurance. So all of that breaks down a barrier for a family that may not have had the ability to pay for the cost of refinancing.
Edited for length and clarity.
