Editorial “Our housing woes” relates:
“The new HARP program is designed to allow those homeowners, who have continued to make regular payments on homes that have lost value, to refinance at a lower interest rate. The 125 percent loan-to-value cap, which prevented borrowers from refinancing if the value of their homes fell, has been removed. Fees will be reduced, and banks that refinance loans will be cleared of liability. The idea is that by reducing monthly payments, households will be able to loosen their purse strings to buy items and spur the economy.”
WATCHDOG: The new HARP seems to be a messy but pragmatic response to an otherwise intractable situation.
It makes little sense for the lenders or FHA to repossess houses and thus incur an immediate average repair and transaction cost of 30% if they can ultimately collect the face value of the mortgage, even when they have to forego an above market interest rate.
From the view point of the employed home owners, this enables them to afford to stay put and hope that over time the value of their houses will rise. There are great benefits to families and society in general.
Of course any further aggregate losses occurred by FHA will likely be passed along to the tax payers. Nevertheless, we suspect that all things considered that this will be a win-win situation.
The approach should bolster the economy by stabilizing the housing market. Whether it “loosens purse strings” is a matter of conjecture.
