More Underwater Borrowers To Get Refis

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Despite the fact that government officials continue to tell me that mortgage "walkaways" (borrowers who voluntarily stop paying their mortgages because their loans are worth so much more than the value of their homes) are really not a big problem, today they extended the Home Affordable Refinance Programby a year.

This is the program that allows borrowers with Fannie Mae and Freddie Mac loans to refinance into fixed rate loans with lower monthly payments, even if they have up to 125% LTV (up to 25 percent negative equity).

In other words, it gives more underwater borrowers incentive to stay put.

The Federal Housing Finance Agency's Acting Director Ed Demarco said in a statement:

"FHFA has reviewed the current market situation and the state of mortgage insurance availability and has determined that the market conditions that necessitated the actions taken last year have not materially changed."

Translation: The mortgage market is still bad, home prices are still falling, and more borrowers are sinking underwater as we speak.

"Accordingly, to support and promote market stability, and to encourage lenders and other mortgage market participants to fully adopt the HARP program, including the implementation of the October 2009 expansion of loan-to-value ratios (LTVs) to 125 percent, FHFA is authorizing the extension of HARP until June 30, 2011."

Unlike the $75 billion Home Affordable Modification Program, which has shown less-than-stellar results so far and drawn immense criticism, the refi part of the Obama mortgage bailout has been quite effective. Bank of America's reps tell me, "we have used the enhanced loan-to-value guidelines and streamlined provisions of the government program to refinance mortgages for more than 157,000 customers. Of this amount, nearly 84,000 have benefitted customers with LTVs greater than 80 percent."

According to FHFA, in 2009 Fannie and Freddie purchased or guaranteed 190,180 HARP refis with LTVs between 80 and 125 percent. All those folks supposedly got lower monthly payments and more dependable, conservative loan products.

Now you could look at this in two different ways: Either the government is doing this extension because it expects home prices to get far worse well through 2010, and it needs to do everything it can to keep good-paying borrowers in their homes, or it's doing this because it has so much faith that home prices will recover quickly, that it's willing to put the two mortgage behemoth's at even greater risk, owning or guaranteeing more borrowers who have zero skin in their homes.

What do you think?

Questions? Comments?