The Debate on How to Spark the Housing Market Continues
During a recent speech on the state of the economy, President Obama reopened what has been a fiery and exhaustive debate on how to inspire the sluggish housing market.
Though the President provided no specifics, he did announce that his administration has decided to increase the availability of refinanced mortgages through the Home Affordable Refinance Program, which was designed to help homeowners stuck in upside down mortgages refinance their home loans.
So far the HAMP has grossly underperformed, granting only 840,000 refinanced mortgages while 16 million of the 40 million U.S. home mortgages are still underwater. Meanwhile, these struggling homeowners are missing out on record low 30- and 15-year fixed mortgage rates that could be saving them thousands of dollars in interest payments.
While some economists and experts believe the Program should be expanded to help a wider base of American homeowners, others say the housing market is better off left alone.
One of the requirements for taking part in the HAMP is that the mortgage must be backed by Fannie Mae or Freddie Mac. In order to offset the risk of homeowners defaulting on their new loans, Freddie and Fannie have been charging banks a refinancing risk fee; these fees have been tricking down to borrowers, and some experts believe they may be dissuading homeowners who otherwise would choose to refinance.
The HAMP only allows homeowners to refinance into a mortgage that is at most 25% more than the value of their home, meaning that the most drastic upside down mortgages, and the most struggling and desperate of homeowners, are not qualified to receive help.
In order to help more homeowners, some experts suggest lowering that requirement and creating a new high-risk investment product to back these subprime refinanced loans.
However, research conducted by the Congressional Budget Office and the Chicago Federal Reserve have concluded that they dont believe any tweaks would have much of an impact on the market.
Critics argue that the amount of extra revenue generated through refinancing more mortgages would account for only one tenth of one percent of the housing market, therefore not enough to make a real impact on spurring economic recovery.
The critics believe the housing market would be far better off if the government would stop intervening, claiming that changes in policy and expected changes in policy are slowing the process. If the government were to allow housing prices to fall naturally, buyers would eventually return to the market.
One way or the other, the fact stands that the housing market is still struggling, and is expected to do so for the foreseeable future.