The Home Affordable Refinance Program allows millions of American homeowners to refinance their mortgages. The program was designed as one of President Obama's solutions to improve the weak economy. The Home Affordable Refinance Program is not a continual program and only lasts until June of 2010, according to the government's Making Home Affordable website.
What Is a Refinance?
When a refinance is done, a borrower's original mortgage is replaced by a new mortgage on the same property, with different terms. People usually refinance when interest rates are lower than when they originally bought the house and they want to lower their payments. A borrower can refinance a loan that has a fixed or an adjustable interest rate, regardless or whether it is backed by the federal government, such as an FHA or VA loan.
The Problem
The U.S. Department of the Treasury states that the Home Affordable Refinance Program began due to the slow economy in 2009. Many homeowners who had been consistently on time with their mortgage payments had seen their homes lose value due to the bad economy. Since the value of many homes had decreased, the loan-to-value ratio of the borrowers decreased, making it a lot harder to qualify for a traditional refinance. Many homeowners who could not refinance their mortgages were left paying high interest rates on homes that had very little value compared to the sum of their loans.
Purpose
According to the Making Home Affordable website, the purpose of the Home Affordable Refinance Program is to boost the economy and help up to 9 million Americans lower their mortgage payments so that they can afford to stay in their homes longer and not go into foreclosure. The program states that it will help homeowners who have federally guaranteed loans through Fannie Mae or Freddie Mac to refinance their mortgages.
Eligibility
Borrowers must not be delinquent and must have not had overdue payments for 30 days or more during the past 12 months in order to qualify for a refinance, according to the Making Home Affordable website. Furthermore, the program states that borrowers are eligible if their loans have not already been refinanced and the loan is not greater than 125 percent of the property's current market value.
Benefits
The Home Affordable Refinance Program offers borrowers the opportunity to save money and stay in their homes. A benefit to the Federal government is the projected increased stability of the housing market, which greatly affects the overall economy. Lenders will also benefit in that there will be fewer foreclosures and they will be free to lend out more money.
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