President Obama, meeting with homeowners at the White House, said the government’s efforts to drive down interest rates had fueled a surge in refinancing -- putting money into many homeowners’ pockets during the current economic crisis.
But almost all the refinancing so far involves borrowers with conventional mortgages who are not in serious financial trouble. The president’s own programs for helping troubled homeowners are just beginning to get off the ground.
Fannie Mae, the larger of the two government-sponsored mortgage financing arms, just began accepting automated applications from mortgage lenders Monday, said spokeswoman Amy Bonitatibus.
By Thursday, fewer than 1,000 loans had been refinanced under the program, though the pace is expected to pick up dramatically in the weeks ahead, according to the Treasury Department.
Turning his focus to the economy Thursday, his first day back from a foreign trip, Obama used the White House economic round table with homeowners to laud the surge in mortgage refinancing as “good news” for American families in the midst of the gloom of the recession.
He credited “some extraordinary actions by the Federal Reserve,” which in March began aggressively buying mortgage-backed securities in an effort to lower mortgage rates, as well as his own housing relief plan, announced in February.
Mortgage rates are near historic lows, with the average rate on a 30-year mortgage at 4.87% this week, according to Freddie Mac.
Though economists mostly have credited the Federal Reserve’s actions for the lower interest rates, Obama economic advisor Austan Goolsbee also pointed to a $200-billion credit line the administration announced in February for Fannie Mae and Freddie Mac. Goolsbee said the credit line had helped raise investors’ confidence in mortgage-backed securities.
Mortgage refinancing applications are up 15% since the beginning of the year, according to a weekly survey by the Mortgage Bankers Assn. Obama noted that the same survey shows an even bigger jump in refinancing applications -- 88% -- since the week he announced his mortgage relief plan in mid-February.
Orawin Velz, an economist with the bankers trade group, said lenders were still insisting on high credit standards for borrowers, with good mortgage payment histories and equity left over in their homes.
“Right now, it’s become a lot more stringent,” Velz said.
She predicted that the administration’s relief programs for struggling homeowners wouldn’t have a significant effect for several more months.
Still, with Obama’s $75-billion mortgage relief plan announced less than two months ago, federal officials have moved unusually rapidly to begin approving loans under the plan.
Administration officials pointed to signs of high interest among homeowners. Bank of America reported that 200,000 people had checked a bank website with information on the mortgage relief plan.
Since the Treasury Department released guidelines for eligibility on March 4, more than 1 million borrowers have gone to Fannie Mae and Freddie Mac websites to see if they are eligible for refinancing under the Obama program.
The plan allows homeowners who pay high interest rates but have little or no home equity to refinance their mortgages. Because of the drop in home values, many homeowners have been left with little or no equity, making it nearly impossible for them to refinance their loans.
The mortgage relief plan also provides a separate avenue for struggling homeowners who are at risk of losing their homes. The plan provides incentives for banks to renegotiate mortgages to make them more affordable.
Spokesmen for Bank of America and Citigroup, two of the nation’s largest mortgage servicers, said they had imposed moratoriums on foreclosures against borrowers they believe would be eligible for the loan modification plan but have not yet altered any mortgages under it.
Citigroup has begun to put some borrowers in a three-month trial period required under the plan to see if they can successfully meet a modified payment schedule, a spokesman said.
Obama was upbeat at the economic round table.
“There are 7 [million] to 9 million people across the country who, right now, could be taking advantage of lower mortgage rates. That is money in their pocket,” the president said.
“And we estimate that the average family can get anywhere from $1,600 to $2,000 a year in savings by taking advantage of the various mortgage programs that have been put in place.”
Obama, urging Americans to visit the website the White House has created -- www .makinghomeaffordable.gov -- said homeowners can immediately find out online if they are eligible for the program.
Obama also warned against the mortgage refinancing scams that abound.
“I just want everybody who’s watching today to know that if somebody’s asking you for money up front before they help you with your refinancing, it’s probably a scam,” he said.