LoanCentral's Real Estate Lending Blog

HOUSING REVIVAL MAY HINGE ON WIDER REFINANCING ACCESS

Fed policy makers are meeting this week to discuss alternatives to help spur the housing market in an effort to help revive the U.S. economy.

Last week it was announced that a new HARP program would soon be released to give homeowners who are underwater on their mortgages the ability to refinance. This would reduce monthly payments, free up cash for other purchases that could spur the economy and reduce unemployment, Fed Governor Daniel Tarullo said. The original HARP program which began in 2009 fell 80% short of its goal of helping 5 million households.

The agencies are hoping this new HARP program will bring better success in helping more families.

There is also talk of the Fed buying mortgage backed securities which would help to push down borrowing costs also driving more refinancing options for homeowners.

"The Achilles' heel of the Fed's efforts so far has been that the monetary-policy transmission has not worked as they would like because of, in large part, the inability of consumers to get loans" for homes and other purchases, said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. Bank lending standards are currently so tight many well qualified homeowners are turned away from mortgages. With Fannie Mae and Freddie Mac making Banks buy back record numbers of loans, the Banks are now underwriting loans in fear, rather than based on common sense. Whether the agencies are aware of this problem or not remains to be seen.

At this point, it looks like the Fed is pushing to roll out the next HARP program, and then start buying mortgage-backed securities in an effort to lower interest rates and see if this will spark the housing market. We will continue to monitor these actions and will push out information as soon as it becomes available.