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How And Who Does New Refinancing Rule Help?


One of the biggest drags on the economy is the poor housing market. Low mortgage rates should make it easy for homeowners to refinance and save money, but many people don't qualify, so they're stuck making payments on homes that are worth less than the loan.


This week, the Obama administration announced changes to an existing program. Those changes are aimed at making it easier for more people who are underwater to refinance. If enough people can lower their monthly payments, those savings might boost the economy, or at least that's the hope.

SHAPIRO: A key player in this latest move is Edward DeMarco. He's head of the Federal Housing Finance Agency and he joined us in the studio to discuss these new rules. Welcome.

EDWARD DEMARCO: Good morning.

SHAPIRO: How many people do you think ultimately this could help?

DEMARCO: Well, it's inherently difficult to make these sorts of projections. We have said that we think that the program may roughly double the amount that we've already seen come through, but beyond that, it is really hard to say because it depends upon what happens to interest rates and it depends upon the borrowers themselves.

SHAPIRO: You say it could double the number that have come through, so almost a million have come through. Until now, there some 11 million Americans who are underwater, whose homes are worth less than they owe on the home. Sounds like a drop in the bucket.

DEMARCO: Well, we are the overseer of Fannie Mae and Freddie Mac. And while there are a number of millions of homeowners in underwater mortgages today, less than half of them are in mortgages that are owned or guaranteed by Fannie or Freddie. We have no authority over the underwater mortgages that were done through subprime lending or have been financed through private label mortgage-backed securities.

SHAPIRO: So it sounds like you're saying this not a huge solution to the problem of housing, nor was it meant to be.

DEMARCO: That's correct. This program, when it was first announced in early 2009, was really targeted at borrowers in Fannie Mae and Freddie Mac loans who were remaining current on their mortgages but because of the decline in house prices found themselves unable to refinance the mortgage and take advantage of lower mortgage interest rates. Keep in mind, because these loans are already owned or guaranteed by Fannie Mae or Freddie Mac, and Fannie and Freddie themselves are backed by the Treasury Department, the American taxpayer already has the credit risk on these mortgages. So we think the announcements that we've made this week to allow for a greater opportunity for refinancing serves a lot of different benefits. It helps these homeowners who are eligible, it helps the neighborhoods in which these houses are located, and it helps Fannie and Freddie because it lowers the credit risk of these mortgages and hence it's providing added protection to the American taxpayer.

SHAPIRO: And do those checkboxes that you just listed off, sir, that these were pre-2009 loans, that people made their payments for six months, did that make this a little more palatable, that it's not a bailout for people who bought more house than they can afford, it's just really helping people who are in a bad situation?

DEMARCO: Yes, I think that's quite right. I mean, we're talking about a set of borrowers who have been responsible borrowers, have been paying on their mortgage, and even though a number of them know that they are now underwater on their mortgage, they are honoring their financial commitment. They're paying their mortgage.

SHAPIRO: And are you certain that this is not ultimately going to cost American taxpayers? Because if people are paying four percent rather than seven percent on their loan, Fannie and Freddie make less money off of that and ultimately the American taxpayer's on the hook.

DEMARCO: What I'm more concerned about here is that if you've got a borrower and they're not able to refinance and they're continuing to carry that mortgage at a six-and-a-half percent interest rate, right, that's straining that household balance sheet that much further. If they're able to refinance into a four or four-and-a-half percent interest rate, that improves that household balance sheet and that is going to reduce the credit risk of that mortgage.

SHAPIRO: How did you get the lenders on board with these changes?

DEMARCO: Well, we talked to them about what they viewed as the difficulties of implementing the HARP program, and there were...

SHAPIRO: HARP is the name of this program that was established in 2009.

DEMARCO: Yes, exactly. The lenders, the mortgage insurers and Fannie and Freddie all realized that by getting refinances of these seasoned mortgages with these borrowers who are making good on their payments, we lower the risk to all of us.

SHAPIRO: Fannie and Freddie, which you oversee, are right now to a large extent what is holding the American housing market together. Do you see a point sometime in the future when the government will get out of the housing business, and if so, how far off do you think that may be?

DEMARCO: Well, I certainly do expect that we will get to that point. I certainly believe that we can find a transition path so that much more of this mortgage credit is actually shifted back to the private sector so that private capital is the one that is providing that backing. But that is going to take some time and it is certainly going to take legislation on the part of Congress.

SHAPIRO: Edward DeMarco is director of the Federal Housing Finance Agency. Thanks for coming in.

DEMARCO: Thanks for having me. Transcript provided by NPR, Copyright NPR.