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Friday, October 21, 2011

Report: Analysts not optimistic about new FHFA Refinance Plan

by Calculated Risk on 10/21/2011 09:36:00 PM

From Bloomberg: U.S. Mortgage Fixes Won’t ‘Shock and Awe’ Economy, Analysts Say

A federal plan to help homeowners refinance their mortgages is expected to reach fewer than 1 million borrowers, too few to give a jolt to the struggling U.S. economy, lawmakers and analysts say.
While details of the program’s improvements remain under wraps, [Edward J. DeMarco, acting director of FHFA] told lawmakers this month that he was considering expanding HARP to borrowers who are more than 25 percent underwater.
“Originators are afraid of these loans,” [Bose George, an analyst with Keefe, Bruyette & Woods Inc.] said. “It’s almost by definition a high-risk loan.” They fear refinancing higher-risk borrowers could trigger scrutiny from the government-sponsored enterprises, which are free to revoke guarantees if a loan sours or flaws are discovered.

A waiver from such potential violations would be needed to get lenders on board, George said. ... “There is a political risk to just waiving them. It could be seen as a gift to the banks,” he said.
I can't comment because I haven't seen the plan yet. But just raising the LTV above 125% probably will not have much impact. And giving the lenders a waiver probably will not fly. This should be announced next week.