June 15, 2012
How I Benefited from the Obama Housing Policy
I am someone who has personally benefited from some of President Obama's economic policies. In addition to getting the temporary payroll (Social Security) tax break, I am now refinancing my underwater home through President Obama's Home Affordable Refinance Program (HARP). My home is now worth about $25K less than I owe due to the collapse of the housing bubble, and in three years I would be facing a significantly increased interest rate from the already high rate I have now if I were not able to refinance. I acquired my home in 2005 with a 10-year fixed rate, which would change to an adjustable rate mortgage at the 10-year maturity, because I did not plan on living there for over 10 years. But the housing crash put me in a difficult situation, as it has done for millions of Americans, and made refinancing pretty much impossible. Of course, selling the home at such a huge loss was not a viable option for me either. As I researched my refinance options, I found that no lender would have granted me a refinance loan for my underwater property on their own volition, even though I have never made a late payment. It's only through HARP that I am now able to refinance and take advantage of some of the lowest interest rates in about half a century, and it didn't cost the American taxpayers a nickel for me to do so. So thank you Mr. Obama, for helping me and millions of other Americans keep our homes with even lower monthly payments.
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2 comments:
I guess I don't understand what this is. I don't see how you could lower your payments without SOMEONE losing out. ??
Good question Jaimie. That's really more of a question about how refinancing works in general.
Most home mortgages are set up so you can pay them off at anytime without penalty. You aren't forced to keep the mortgage for the full term (most often 30 years). So if you win the lottery or somehow get rich quickly, you can pay off your loan and thus not have to pay interest for the remaining term of the loan. Likewise, because we have a free market economy with many different lending institutions, if another bank tells you they'll pay off your existing loan, and give you a new loan for a lower interest rate, that's great for you (and the new bank because they get your business). That is the essence of refinancing.
It's true that the original bank loses your business, but you were never locked into that first loan to begin with. This is really just free-market competition between banks offering loans at different rates. How mortgage interest-rates are set is a pretty complicated topic, so I won't go into great detail, but banks choose their own rates while trying to stay competitive because they realize that if their rates are higher than other banks, people wanting new mortgages will usually go to the bank with the lowest rate. Banks still make money right away every time someone takes out a new loan, because they charge all sorts of fees, including the origination fee (part of your closing costs), which is usually pretty sizable. (As an aside: I actually refinanced with the same bank I had before, so they didn't lose my business after all. But had they not offered me an opportunity to refinance at competitively low interest rate, I could have gone to another bank to refinance. That's why it's possible to refinance with the original bank because they want to keep your business.)
The HARP program is great because it changes some of the rules on how lending works and allows underwater homeowners (those whose homes are worth less than what they owe on the mortgage) to refinance at a lower rate. It's important to keep in mind that the vast majority of Americans lost value in their homes during the recession not due to any fault of their own. HARP is good for banks and the economy because it significantly reduces the likelihood of foreclosure. Everyone ends up losing during a foreclosure, especially in the current situation with falling home prices, so keeping more people out of foreclosure benefits the economy as whole and helps to stabilize home prices. The downward spiral in home prices nationally since 2007 was in large part due to the huge number of foreclosures. And as home prices dropped, even more people were forced into foreclosure- making a vicious cycle. HARP doesn't use taxpayer dollars to subsidize loans so it's not a hand-out. The homeowners still owe the full amount of the loan, but they get to take advantage of historically-low interest rates and lower their payments.
Here's a good explanation of how HARP works:
http://en.wikipedia.org/wiki/Home_Affordable_Refinance_Program
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