House loan aid program to help underwater homeowners rebooted

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 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.

Independent economists say HARP has underwhelmed, but they generally supported the president's plan because it will boost borrower cash flows, thus freeing them to spend more in a sluggish economy.

Thousands of homeowners could be helped in the Northern San Joaquin Valley, a fact that did not escape the region's two congressmen.

"These changes are merely baby steps to addressing a far greater crisis than the president and his administration are willing to admit," said Rep. Dennis Cardoza, D-Merced. "This revised plan doesn't do anything to compel banks to participate, which is one of the primary reasons the HARP program has failed. The new plan will also fail to help the hardest-hit areas, like the Central Valley, where a new appraisal is impossible because the bottom has fallen out of the housing market."

Rep. Jerry McNerney, D-Pleasanton, whose district includes San Joaquin County, said: "I hope this has a positive effect, but if it does not deliver, I will continue to hold the Obama administration accountable and demand relief for homeowners. We must do more to help the people of California who have been plagued by the foreclosure crisis."

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.

Program never took off

HARP never quite took off, helping about 800,000 homeowners, far less than 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 believed to be underwater on their mortgages.

"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.