Arizona Republic real estate reporter Catherine Reagor explains how a new federal mortgage relief plan could help more Arizona borrowers refinance their upside-down home loans.
Ted Simons: This week President Obama announced plans to help more borrowers refinance their upside down home loans. Here to talk about that is Catherine Reagor, she's a real estate reporter for "The Arizona Republic." It's always good to have you on. We finally got you on for some pretty encouraging news.
Catherine Reagor: Yes. I had heard rumors and speculation about this, and this is not the loan modification, this is the refinancing, where people who have done pretty much everything right, they just owe more than their house is worth because of all the foreclosures and short sales and drop in home sales and they're going to be able to refinance. They're lifting the cap.
Ted Simons: The cap was, if it was 125% of home value.
Catherine Reagor: That meant you had to be just 25% under water. And our home values have dropped 65%. So that doesn't help a lot of people.
Ted Simons: This is the home affordable refinancing program updated after it is already been updated once before.
Catherine Reagor: Called HARP. And they use that acronym, but it's called HARP. At first it was 105%. And then it went to 125%, but since 2009 when they announced it home prices have dropped more. So they are lifting the cap. Your 200% underwater, which some people are, and you qualify, Fannie Mae and Freddie Mac loan, which --
Ted Simons: That's a requirement; it has to be backed by Fannie and Freddie?
Catherine Reagor: Yes. And most conforming loans are. If you have a jumbo loan, no. The limit for a Fannie Mae and Freddie Mac loan in metro Phoenix has never been more than 500,000. If your mortgage is 500,000 you're likely not. But people get confused because Bank of America is their lender. They could have made your loan and you could be sending them your payments, but it is backed by Fannie Mae and Freddie Mac and you can go to making homeaffordable.gov and figure that out.
Ted Simons: You find out you're qualified, you say, hey, what exactly do you get? What happens? How does it work?
Catherine Reagor: We don't have all the details yet, but they say December. That's soon, and that's quick. They already have the program in place. Taxpayers, the government owns Fannie Mae and Freddie Mac, so this is something they should easily be able to administer through HUD and treasury. Essentially you don't have to get an appraisal, because that's a cost you usually have to pay for a refinancing, and they've streamlined the process, and also they're going to try to make it competitive with different lenders because they're cutting the fees for lenders. And these are mostly conforming loans. These are loans where people are paying. These are loans lenders should want to refinance and keep.
Ted Simons: I want to ask you about that. The lenders are going to have to cooperate here, are they going to cooperate here? The president says if they don't cooperate, this makes for competition for those who want to come in. That's a nice theory, it is going to work?
Catherine Reagor: We heard that before, remember when it was first announce it was the carrot and the stick. It didn't work. The loan modifications did not work. Now, Fannie Mae and Freddie Mac are owned by the government, they can push it through. They have the power, and it's working with the lenders, and again, these are the loans they want. These are the loans people are making payments on. So to get it -- if you otherwise, people are walking away from 7%, 6%, even if you're making 3.9% or 4% on a mortgage right now, if you're a lender, that's a great return on your money. So we'll see. But they have to carry a big stick. The government, the Obama Administration really has to bring that out.
Ted Simons: The idea of course being that once you get this refinanced, once that all is lifted a little bit over your head or your neck, you have the money to go inject into the economy.
Catherine Reagor: Yes. And have you more money to spend because you can save $500 or a thousand a month. The problem is, it's not cutting principle. You're still under water on your mortgage.
Ted Simons: Well, yes.
Catherine Reagor: But right now, if you can't sell anyway, you love your home, or like your home, you're in a good neighborhood, a good school, a good shopping center, close to your job, and you can cut your payment by $500 a month, and it costs you very little? And doesn't take a lot of time? Seems you know--
Ted Simons: You mentioned earlier, a previous government program, previous plans, this particular program, didn't seem to hit a lot of folks in Arizona. This one seems like this could be a bit of a game-changer if everyone cooperates.
Catherine Reagor: Yes. The problem is the big questions, we did a live chat on this, people have rental homes. It has to be your primary house. You have to live there. What is sad is some people couldn't make their mortgage payments so they moved out, and now are renting them. But the Obama Administration is going to have to consider all these factors, because the market has changed so much. If you have a second mortgage, they're kind of blurry on whether you still qualify, but they're going to have to look at that because so many people do.
Ted Simons: Skeptics will say another government program, it's simply not going to work. Are you hearing that?
Catherine Reagor: Yes. And we're hearing -- the money is out there. They didn't spend it on the modifications, the money is there. But this rewards the people who have done everything right, and helps encourage people to stay in their homes instead of walking away because they owe too much. They owe more than their mortgage, and it could be a good thing. It could be a really good thing for Arizona and help slow foreclosures and stabilize home values.
Ted Simons: And no jumbo, you can't have missed more than one payment in the last year?
Catherine Reagor: Yes.
Ted Simons: And if you're upside down, good news for you. Hope there's a Fannie and Freddie in your portfolio as well.
Catherine Reagor: You can check that out. You'll be surprised. They own most of the loans out there.
Ted Simons: How do you check that out?
Catherine Reagor: Makinghomeaffordable.gov is the federal website, and you can call your lender and figure it out, there are several ways to do it. If you're confused, email me at [email protected] and I'll help you.
Ted Simons: It's good to have you on the show. We got you on for some good news for a change.
Catherine Reagor: Yeah, yes.
Ted Simons: Thank you.
Catherine Reagor: Thanks.
Catherine Reagor : Real Estate Reporter,Arizona Republic