In a 180 degree turn from practices just a few short years ago, banks are making it extremely difficult to get a loan, especially if that loan is a refinance.
The Obama administration’s program to encourage the refinancing of loans owned or guaranteed by Fannie Mae and Freddie Mac was supposed to benefit up to 5 million homeowners whose loans exceeded their home’s current market value by as much as 5%.
Then, this summer, the program was modified to allow refinance of a mortgage as much as 25% over current value.
But the loans aren’t being made as planned.
The Home Affordable Refinance Program, known as HARP, had helped only 116,677 homeowners as of September 30.
The problem? Lender participation is voluntary, and they don’t want to make the loans.
Some homeowners, feeling the pinch because of job layoffs or salary reductions, are trying to refinance to take advantage of the lowest mortgage interest rates since the 1940’s. Dropping from a 7 or 8% interest rate down to 5% rate would save them hundreds of dollars per month and in many cases, allow them to hang on to their homes.
For others, the dark specter of an ARM about to reset is spurring the need for a refinance. For them, a refinance into a fixed rate will likely mean the different between keeping their homes and losing them.
But the banks, citing a need for tougher standards, don’t want to make the loans. There are, however, those who believe that isn’t the real reason. It simply isn’t in their financial best interest to give homeowners lower interest rates if they can manage to make the payments at their current rate.
And that’s probably the same reason that so few have been able to get loan modifications under the administration’s TARP program. They seem to have an attitude that if the person has been managing to make the payment at 7%, they might as well keep on paying at that rate.
The TARP program made it mandatory for banks who accepted bail-out funds to participate in making loan modifications, but as of Sept. 1, only 1,711 permanent loan modifications had been completed. Only 350,000 trial modifications had begun, and some homeowners report that the 3-month trial has stretched to almost a year, with the lender putting them off and repeatedly asking for the same documentation from month to month.
Sadly, the refusal to grant refinance loans or loan modifications is pushing many homeowners into short sales and foreclosures.
The wisdom of these programs will likely not be known for several years, but one thing is certain right now. The less money consumers give directly to the banks, the more money they will have to spend in the marketplace, or to pay other bills that may have piled up during this recession. If the banks held up their part of the bargain this economy just might begin to recover.
Author: Mike Clover
CreditScoreQuick.com your resource for free credit reports, credit cards, loans, and ground breaking credit news.
this is just another way for the government to control people and hold the people that try do to do right back and keep them in check. Fight the government why we can!!!!!