When you apply for a refinance, it's logical to assume that the people with the greatest interest in your application is your mortgage lender. However, the US government has a stake in making refinancing easier--to the benefit of homeowners who are considering a refinance.
Whether you agree with these programs from a policy standpoint doesn't change the fact that the US government's actions are helping many individuals refinance, often at low mortgage rates. This help comes in three primary forms.
1. FHA Guarantees Refinances, Too
The Federal Housing Administration (FHA) is most well-known for guaranteeing home loans for home buyers who do not have a large down payment. However, the FHA is also active in guaranteeing refinance loans.
The FHA's "streamline refinance" program is a great example of this. If your current home loan is FHA-insured, you are current on your payment, and your payment would be lower after refinancing, you may qualify to bypass most of the horribly taxing paperwork involved in a typical refinance.
If you want to take advantage of the streamline refinancing program, however, act fast: FHA will tighten its streamline refinance guidelines starting January 1, 2010.
2. Home Affordable Refinance Program (HARP)
By all accounts, the? Home Affordable Refinance Program --created by the Treasury Department in March--has not stemmed the foreclosure crisis. By the end of July, only 60,000 refinances had been processed through HARP; President Obama and Treasury officials had hoped for millions.
Nevertheless, the HARP program is making some headway. The reality is that HARP, which recently began accepting applications from homeowners with up to 125% loan-to-value ratios, is the only hope for refinancing for those with low equity in their homes or who are under water.
3. Refinance Saviors: Fannie Mae and Freddie Mac
By far the most important structural support for the refinance market has been the escalating purchase of home loans by the government-sponsored entities Fannie Mae and Freddie Mac. There is no way that banks such as Bank of America and JPMorgan would be so aggressively refinancing loans at today's low rates without the activities of these government-sponsored entities.
Though the extent of the government's involvement in the refinance market may not sit well with everyone, there's no denying the outcome: low mortgage rates and a more relaxed refinance environment for homeowners than otherwise would exist.
Andrew Freiburghouse
Andrew Freiburghouse is a writer and a businessman. As a partner at Los Angeles tax preparation firm Pronto Income Tax of California, Inc., Andrew has advised thousands of clients on a variety of financial matters.
