How The Government’s Home Affordable Program Impacts Homeowners Of All Types

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Not 10 minutes after The U.S. Treasury's official Making Home Affordable announcement March 4, 2009, the nation's news sources were already printing misleading headlines and incomplete stories.

The ranged from sensational to mundane. Mostly, though, they were incomplete. Rest assured, my friends, you're not getting a 2 percent rate on your mortgage.

Here's the bullet points from today's announcement:

• Loan modification guidelines for "at-risk" homeowners are defined
• Refinancing guidelines for "underwater", on-time homeowners are not defined

I'm not going to rehash the loan modification stuff.  I'll leave that to guys that do loan modifications for a living. In a nutshell, if you've already fallen behind on your mortgage and can verify income using W-2 and tax returns, the government offers powerful incentives to both you and your lender to get you current on your home loan and keep you current.

Consider talking with a loan modification officer for specific how-tos.

For everyone else, though -- the estimated 5 million homeowners with little or no home equity -- the press release ran like The Gary Gnu Show.  Nothing bad, or wrong, happened and there was no gnus news whatsoever.

The Treasury's official announcement lacked guidance for homeowners with perfect payment history but whose home values have fallen far enough to make refinancing is impossible or improbable.  Instead, the Treasury punted to Fannie Mae and Freddie Mac.

In its 152-word, devoid-of-details paragraph regarding the Making Home Affordable Refinance Program, the Treasury said:

GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary.

The Treasury, in other words, left the creation of specific refinance guidelines to a different government agency. In addition -- unlike with its loan modification program -- the Treasury failed to identify which homeowners could be helped, stating "many of them will now be eligible to refinance".

Phrases like "are not likely", "in some cases" and "many of them" are decidedly vague and this lack of clarity is disappointmenting homeowners. But the Treasury's position is understandable.

Unlike mortgages in default, loans paid on-time often yield healthy returns for investors in exchange for relatively little risk.  Performing mortgages can be wrapped into mortgage-backed securities and later sold to foreign nations, pensions, and other investment vehicles.  Which, it should be noted, are not supported by American taxpayers.

So, when Fannie Mae and Freddie Mac define the terms of the Making Home Affordable Refinance Program, it's expected to be similar to the FHA Streamline Program in which no home appraisal is needed and the borrower's eligibility is defined by his history of on-time payments.

It's a bit of common sense -- if you've got a perfect payment history at your current mortgage rate and payment, there's no reason why you shouldn't be eligible for a new loan with a lower rate and lower payment.  All it does it put money back into your pocket and that's the stance that the government-sponsored lenders are expected to take sometime soon.

How soon?  Who knows. And maybe never.

So, if you've got a mortgage application in-process, follow through with it.  Close on it.  And then if mortgage guidelines change in your favor later this year or next, make adjustments as needed.

One thing seems clear, though. In reading press releases, the government is no longer harping about 4.5% mortgage rates or any other rate target.  The Fed continues to buy mortgage-backed bonds and that is helping rates stay low.  Beyond that, free market forces are in full-effect.

Mortgage rates are higher today in the wake of the Making Home Affordable announcement.