Assessing the Local Impact of the New Mortgage Refinancing Plan

We here at StateImpact have been trying to get a sense of the potential local impact of the expansion of a federal mortgage refinancing program, announced last week.  The program is intended to allow underwater borrowers to refinance, but only if they are up-to-date on their payments, and only if Fannie Mae or Freddie Mac acquired the loan before June 2009.

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Twenty-three percent of all mortgaged properties in Idaho were underwater at the end of June, according to the most recent negative equity report from financial data firm CoreLogic.  Finding out what percentage of those homeowners are current on their payments and might be able to take advantage of the new program is more difficult.  Until the lender sends a notice of default or begins the foreclosure process, that information is between the borrower and the lender.  “I want to know this answer more than you do,” said Mark Lebowitz, Executive Officer of the Ada County Association of Realtors.  Lebowitz has been dismayed to watch the number of default notices rise in the county since August.  “I’m looking for some solid federal program that will be able to reverse that,” he said.

Tom Birch, who counsels distressed homeowners at Neighborhood Housing Services, Inc., says it’s also difficult to divine what the impact of the program will be in Idaho, or anywhere else, in part because the specifics of the expansion have not yet been released.  Moreover, he says, its unclear whether loan servicing entities, like banks, will choose to refinance the underwater home loans targeted by the new rules.

Finally, Birch agrees with national housing experts who have observed that the plan won’t address what is arguably the biggest problem facing the housing market: the huge number of underwater mortgages.  On that point, here’s a video Q&A with Ted Gayer, Co-Director of Economic Studies at The Brookings Institution: