Making Home Affordable: Response to Seattle Times Article

This Sunday, July 5th, the front page of the real estate section featured an article that discussed the administration's "Making Home Affordable" program. This program was designed to help struggling homeowners refinance their mortgages even though they have lost some, most or all of their equity. The program sounds good and definitely gives people some hope in these difficult times. Because the program is government sponsored, there are two different variations- both mentioned in the article: one for Fannie Mae and one for Freddie Mac.

The artile does provide some useful (somewhat) information but, as seems to be the norm for the Seattle Times, misses the most important mark. The punchline for this program is that IT DOESN'T WORK. Here are a few reasons that the program that is intended to help those that are struggling isn't really helping:

1. Mortgage Insurance - If your loan has it, chances are this program is NOT going to work for you. Although the agencies (Fannie and Freddie) will refinance up to 125% of your current value, the private mortgage insurance companies are saying "No way." They don't have the capital to write policies for these high-risk loans. PMI companies weren't eligible for TARP funds and have been crushed by the number of claims that have been on their books.

2. The Banks - Do you think banks want to participate in this program? Of course not. Many banks have agreed to participate, but the actual execution has been tough. The implementation of the program from bank to bank is a lot different and many are imposing their own set of rules. Some banks will only allow these types of refinances on loans that they already service.

3. Second Mortgages - Do you have a second mortgage? If the answer is "yes" then you have to remember that the holder of the second mortgage has to allow you to refinance the first. This is called "Subordination." In practice, the second lien-holders out there aren't allowing the subordinations to go through.

Who this Program Really Helps- If you put 20% down and now you've lost a bunch of your equity, you are the target for this program. Don't expect to get a market rate for your loan, because the banks are marking up these rates due to the extra risk, but at least you are eligible for some help.

I looked at the Times website for the article to post, but I couldn't find it. Sorry!