President Barack Obama unveiled the latest effort Monday to bolster the troubled housing market, a plan that could help one out of five California homeowners with mortgages -- and even more in the Bay Area --- refinance at historically low rates.
The program is designed to stabilize the housing market by lowering monthly housing payments for homeowners who are underwater or close to it, and stimulate the stumbling economy by giving those homeowners more cash to spend.
"This is a big shift in policy in the right direction," said Ken Rosen, a nationally recognized housing expert who is chairman at the Fisher Center for Real Estate and Urban Economics at UC Berkeley.
Rosen said the program will make it less likely that underwater homeowners, who owe more than their property is worth, will "strategically default" -- walk away from their houses and mortgages.
The announcement by the president in Las Vegas relaxes the qualifications for refinancing a federally guaranteed mortgage under the administration's Home Affordable Refinance Program. That program has had less impact than was hoped when it was first announced in 2009.
Under the new rules, more homeowners who are underwater or close to it have a shot at refinancing at mortgage rates hovering just above 4 percent. Refinancing a loan that's at 5 percent or more could significantly reduce monthly payments.
No upper limit
Rep. Anna Eshoo,
Under the new rules:
The announcement buoyed the hopes of Robert Padilla, a south San Jose homeowner whose previous attempt to refinance a first and second mortgage was blocked because of the loan's size in relation to the value of his home.
"We thought about redoing everything and getting it under one mortgage," he said. "Something that had held us back the last time was the value of the home and the amount of the two loans together."
Marcus Jackson has tried three times in the past two years to refinance his $500,000 home in El Sobrante. Jackson said he could use the extra money saved by refinancing.
"For sure, it would give me more money to spend. I'd have more money in my pocket," he said.
Sean O'Toole, of ForeclosureRadar, a real estate tracking service, estimated that one out of five California homeowners with a mortgage could be helped by the plan.
But he pointed out the program won't reduce a loan's principal.
"You save the borrower a little bit of money. But the borrower stays upside down," he said.
The new rules take effect Dec. 1 at the earliest, depending on how fast lenders can gear up, but the 125 percent cap on how far underwater a home can be won't be lifted until the first quarter of next year.
Major lenders JP Morgan Chase, Wells Fargo and Bank of America said they will participate.
Reaction from mortgage professionals was mixed, with some saying it would help their clients, and others noting that it won't help all of them.
California has one of the highest percentage of homeowners who are underwater, noted Paul Leonard, California director for the Center for Responsible Lending. "It's a welcome change that hopefully will have disproportionate benefits for California borrowers," he said.
"A lot of it depends on interest rates and the borrowers' situation," said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. "It's tough to tell how many people will be helped. Certainly, it will make it easier." But, he said, it's unrealistic to expect that the changes will be "a silver bullet that will make everything 100 percent better."
According to CoreLogic, which tracks mortgage performance data, homes at or near being underwater were 21.5 percent of all homes with a mortgage in Silicon Valley, 33.7 percent in the East Bay and 12.8 percent in San Francisco.
"I have a lot of people who could really be helped by this," said Cathy Warshawsky, of Bay Area Loans in San Jose.
"I wish they had done this three or four years ago. Now, people have decided to let their houses go." She said she's encouraged clients to hang on, not walk away from their homes, telling them "at some point, they are going to figure this thing out."
Contact Pete Carey at 408-920-5419.
new help for homeowners
New rules announced Monday:
Lift the limit on how far underwater a home can be -- now 125% of loan value -- to qualify for a federal refinance program.
Provide a reduction in payment because of lower interest rates.
Apply to single family homes, condos, co-ops that are primary residences, second homes or vacation homes.
Don't require appraisals and eliminate or lower certain fees
Could help one out of five California mortgage borrowers.
But the rules don't help everyone.
Homeowners can not be in foreclosure or bankruptcy
They can not have missed payments in the past six months, or more than one payment in past year
Adjustable mortgage and pay-option mortgages are excluded
Loans must be sold to or guaranteed by Fannie Mae or Freddie Mac
Mortgages must be issued on or before May 31, 2009
obama to visit bay area
President Barack Obama will visit San Francisco on Tuesday to collect at least $1.5 million at a luncheon fundraiser.The mid-day event in the W Hotel, at Howard and Third streets, will have 200 guests paying a minimum of $7,500 per ticket; larger contributions will earn photos with the president. The president will answer questions after his remarks, and singer-songwriter Jack Johnson is scheduled to perform.
The president, in town from shortly before 1 p.m. to a little after 3 p.m., is coming from Los Angeles, where he had a Latino-oriented fundraiser Monday evening at the home of actors Antonio Banderas and Melanie Griffith. He is scheduled to tape an appearance on NBC's "Tonight Show with Jay Leno" earlier Tuesday. From San Francisco, he'll head for Denver.
This will be the president's third visit to the Bay Area in a little more than six months, and his seventh since taking office; his last visit, one month ago, saw him collect up to $5.5 million at a pair of Silicon Valley fundrasiers.