Obama’s Subprime Refinance Program

The Obama administration has decided that more subprime loans are part of the solution to the mortgage crisis. Accordingly, borrowers with eligible mortgages that are up to 125% of the value of the underlying real estate will be eligible for a loan modification.

From HousingWire, here are the details:

The administration expanded its Home Affordable Refinance Program to include borrowers current on payments but whose mortgages are worth up to 125% of the house’s value.

In its original terms, the refi program applied to a borrower whose mortgage — owned or guaranteed by government-sponsored enterprise Fannie Mae or Freddie Mac — did not exceed 105% loan-to-value (LTV). The expansion to 125% should broaden the program’s reach to deeply underwater borrowers.

“This decision is part of our ongoing efforts to maximize the effectiveness of the Making Home Affordable program and adapt to an ever-changing housing market,” said Treasury Departmentsecretary Tim Geithner in a statement today.

“By expanding refinance eligibility,” he adds, “we can bring relief to more struggling homeowners more quickly. It’s a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.”

The question is are they doing homeowners a favor with this change? If you’re that far under water it seems to me you should be doing one of two things. Either working on a principal reduction with your lender of bundling up the keys to send them back to him.

This sounds like a great way to establish a class of homeowners that are trapped in their homes for the foreseeable future.

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