Underwater homeowners need an interest rate cut
Three-quarters of homeowners who owe more to their lender than their home is worth are paying above-market interest rates, according to new data by market analysis firm CoreLogic.
In theory, it would be great if these underwater borrowers could refinance -- an idea President Obama referenced in his jobs speech this month.
But here in the real world, federal mortgage programs come with such tight rules that many people don’t qualify.
The CoreLogic data show there’s no shortage of underwater homeowners who could benefit from lower mortgage rates and lower monthly payments.
About 22.5% of all U.S. homeowners who have mortgages owe more on their mortgage than their homes are worth.
They’re in that situation because their homes declined in value, they increased the size of their mortgage, or both.
The more troubled the local real estate market, the higher the proportion of underwater homeowners.
In Nevada, 60% of mortgaged properties are underwater, followed by Arizona (49%), Florida (45%), Michigan (36%) and California (30%).
Things are getting better. The average negative equity share for the top five states declined to 38% from 41% over the past year.
The Obama plan would revamp the Home Affordable Refinance Program (HARP), in which borrowers can get mortgages for up to 125% of the value of their home via mortgage giants Fannie Mae and Freddie Mac.
It’s a program Obama said would help millions of homeowners.
By June of this year, just 838,000 homeowners had used the program to lower their monthly mortgage payment a by a median 27%.
To refinance using HARP:
- Your loan must be guaranteed by Fannie Mae or Freddie Mac.
- You need a 12-month history of on-time mortgage payments.
- You have to prove you can pay the new payment amount.
- You may not have to buy mortgage insurance even if you have less than 80 percent equity in your home.
If you do consider a HARP loan, or whatever loan program the Obama administration comes up with next, pay attention to the size of the fees and make sure they won’t wipe out the savings from the new, lower interest rate.