WASHINGTON -- The Obama administration on Monday rebooted a failing effort to help some homeowners refinance their homes, making it easier for some who owe more than their house is worth to get a new loan.
The new effort, however, stops far short of tackling broader problems weighing down the housing sector.
"If you meet certain requirements, you will have the chance to refinance at lower rates, which could save you hundreds of dollars a month, and thousands of dollars a year in mortgage payments," President Barack Obama said in Las Vegas as he unveiled the changes coming to the Home Affordable Refinance Program, launched two years ago to great fanfare. "Second, there will be lower closing costs, and certain refinancing fees will be eliminated -- fees that can sometimes cancel out the benefit of refinancing altogether."
Independent economists say HARP has underwhelmed, but they generally supported the president's HARP 2.0 because it will boost borrower cash flows, thus freeing them to spend more in a sluggish economy.
"While HARP won't live up to the initial expectations of 4 (million) to 5 million in refinancings, the program will ultimately provide a meaningful boost to the broader economy as financially stressed households will benefit from much lower mortgage payments," said Mark Zandi, chief economist for forecaster Moody's Analytics.
HARP was supposed to be the simpler part of a two-pronged plan to tackle the nation's housing crisis when launched two years ago. It was established to help borrowers whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac to take advantage of historically low lending rates and refinance. The other prong sought to provide incentives for modification of delinquent loans, but it too has fallen far short of expectations.
Fannie and Freddie were quasi-governmental entities until seized by the Bush administration in 2008 and put into receivership. Together they own or guarantee about half of the nation's $10 trillion in outstanding mortgages. They also serve as a secondary market where lenders sell the home loans they make, enabling the lenders to lend more.
HARP never quite took off, helping about 800,000 homeowners, well below the 4 million-plus originally targeted. Among the reasons for its lukewarm performance are numerous fees, high closing costs, bureaucratic hassles with appraisals in a declining market and liability issues tied to the former loans. All are addressed in HARP 2.0, which will operate until the end of 2013.
The biggest problem, however, was the continued decline in home prices. That left more and more borrowers underwater, the term for owning a home worth less than the value of its mortgage. Anywhere from one-quarter to one-third of all homeowners are now believed to be underwater on their mortgages.
The changes announced Monday by the Federal Housing Finance Agency, which regulates Fannie and Freddie, lift a cap that had limited the HARP program to borrowers whose homes had lost no more than 25 percent of their value relative to their outstanding mortgage. That limit is now removed.
Additionally, while borrowers must be current on their loan, there's no longer disqualification if they had at some earlier point been delinquent on mortgage payments.
"This gets potentially more people eligible to qualify," said Paul Leonard, vice president of government affairs for the Housing Policy Council, the trade group for mortgage servicers, who collect payments on behalf of mortgage lenders and investors.
Industry groups greeted the changes with qualified support.
"It's a good tool in the toolbox," said David Stevens, president of the Mortgage Bankers Association.
While the changes help, he cautioned, they won't do anything for the 4.2 million delinquent homeowners. They also don't apply to millions of mortgages held outside Fannie and Freddie.
Many problem loans were in areas where housing prices soared to irrational levels -- places such as Nevada, where Obama unveiled his plan. Fannie and Freddie had tougher underwriting standards and didn't have anywhere near the delinquency and default problems of those linked to Wall Street banks that pooled mortgages into complex bonds.
"The real question is what do you do in those cases? There is no FHFA or institution in conservatorship by the government who can step in and say, 'You are going to rewrite these loans,"' said Stevens. "The only way you could actually address those is to fund the negative equity or pay to refinance those through some other program."
There's little appetite in Congress to force lenders to eat the losses when refinancing underwater loans or to subsidize them with taxpayer money.
The administration acknowledged Monday's plan is no panacea.
"This is just one piece of a broader strategy to help the housing market," Gene Sperling, head of the National Economics Council, said during a conference call with reporters. He declined to project how many homeowners might benefit from the changes.
However, Zandi estimated that 2.85 million mortgages will have been refinanced under HARP from inception until the new end-date of Dec. 31, 2013.
"While I think this was a very positive step, it isn't a magic bullet for the housing market and economy," he said. "Policymakers will thus very likely have to do more to support the housing market and economy."