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As Housing Programs Falter, Administration Weighs New Refinance Plan

Rumors of a new government-led mortgage refinancing program have begun to surface. _DS News_ has received word from sources inside the administration and from high-ranking executives at some of the largest banks,[IMAGE]

confirming that the White House is indeed considering a refi push that would allow homeowners to lower their monthly mortgage obligations by locking in today's rock-bottom interest rates.

Some industry insiders are viewing the move as a concession by the federal government that its existing housing programs aren't doing enough. The latest ""figures from the U.S. Treasury"":http://dsnews.comarticles/hamp-mods-increase-again-in-june-as-big-four-banks-lead-way-2010-07-20 show that 16 months in, the Home Affordable Modification Program (HAMP) has yielded just 389,198 permanent loan restructurings â€" results that even the government's own ""special inspector general"":http://dsnews.comarticles/tarp-inspectors-take-on-hamp-anemic-2010-07-21 has assailed as ""anemic"" and not even close to putting ""an appreciable dent in foreclosure filings.""

The administration has already initiated several refinancing programs in hopes of stemming the nation's foreclosure crisis, but they too have generated tepid outcomes at best. As of the end of March, the Home Affordable Refinance Program (HARP) had allowed 291,600 homeowners to obtain new mortgages with lower rates â€" a mere drop in the bucket considering the program's end-goal is 4-5 million refinancings.

And then there's the Federal Housing Administration's (FHA) ""Hope for Homeowners"":http://www.hud.gov/hopeforhomeowners/ (H4H) effort, which was initiated under the Bush administration. Even after a program revamp in March of last year to increase flexibility for lenders and allow a broader scope of borrowers to qualify, H4H has seen virtually no pick-up in volume. In June, for example, FHA insured just seven new mortgages under its H4H program.

One target where the administration has seen tremendous success, however, is its efforts to lower mortgage rates, which are currently sitting at historic lows. The hope of translating this success into tangible savings for homeowners has ignited discussions among government officials for a new refinance program.


While the specific details of such a program have yet to be made official, sources tell _DS News_ that it would again be implemented through FHA, and could take shape as early as mid-August.

A position statement from one of the nation’s four largest lenders obtained by _DS News_ points out that while the benefits provided to homeowners under a new refinance program would certainly appeal to policymakers, those benefits would come at a cost.

Namely, a large portion of such efforts would be negated with high redefault rates expected on the refinanced loans, the bank said. Secondly, while a government-sponsored refi wave may help existing borrowers, it could penalize prospective new borrowers, as investors price in the potentiality of another government-driven refi wave in the future. And thirdly, refis would result in large losses for mortgage investors.

“Ironically, the worse the economy gets, the more likely there will be a ‘heroic’ attempt to get refis going….we must face the possibility â€" no matter how remote â€" that a 2003 style refi wave materializes,” the bank said, but noted that implementation of a government-mandated refinance rate, say 4 percent for example, would face significant logistical hurdles such as we’ve already seen with the administration’s earlier housing programs.

Another well-known name among Wall Street banks described the idea of a new refi wave as a “slam dunk stimulus.”

“The bottom line is that market conditions have created a potential costless windfall that is not being used,” the institution said in its own position paper, noting that a potential average rate reduction of 125 basis points on 50 percent of the GSEs’ 37 million mortgages outstanding could result in a savings of $46 billion per year for homeowners, in aggregate.

The analysts at ""Barclays Capital"":http://www.barcap.com have voiced their own doubts that a new government-spurred refi wave will actually come about.

“We do not expect a refi wave unless mortgage rates rally at least another 25 basis points, to 4.50 percent,” the research firm said.

Barclays also pointed out that, “One of the central elements would involve the GSEs waiving the ‘put-back option’ (when agency MBS loans go bad, the GSEs can put them back if there are defects in the underwriting). Waiving this right (albeit for a fee) could open policymakers up to _charges that big banks that made bad loans are being bailed out, again_.”

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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