The Treasury Department approved a pilot program to help underwater homeowners in Oregon refinance their mortgage loans.
This pilot program, which will take place in Multnomah County, is based on Sen. Jeff Merkley’s proposal called “The 4% Mortgage: Rebuilding American Homeownership,” that was outlined last July which would allow underwater homeowners who are current on their mortgages the opportunity to refinance to a lower interest rate.
“Refinancing underwater loans is good for homeowners, their communities and our broader economy,” said Merkley. “We need to do everything we can to prevent more foreclosures and put more cash back into the pockets of middle-class families in Oregon. Helping families into affordable, fixed-rate loans accomplishes both.”
The Merkley plan would be similar to the Home Affordable Refinance Program, in which approximately 1.8 million borrowers who have mortgages backed by government-owned Fannie Mae and Freddie Mac got their loans refinanced since it began in 2009.
Merkley said about 930,000 borrowers whose loans are in private-label securities and who are current on their payments can be helped through his proposal.
Under Merkley’s program, a federal trust will be created to buy or guarantee mortgages issued by private lenders enabling borrowers otherwise ineligible for refinancing to obtain new loans with terms of either 15 or 30 years at lower rates.
After refinancing, average underwater homeowners would, depending on the option they chose, see their monthly payment drop sharply or dramatically cut the amount of time before they begin building positive equity in their home.
Currently, underwater borrowers without Fannie Mae or Freddie Mac loans are not eligible for current refinancing assistance programs and are unable to refinance into more affordable mortgages, as they have no home equity to use as collateral for a new loan.
Approximately 11 million homeowners nationwide currently owe more on their mortgages than their properties are worth, according to CoreLogic.
“Sen. Merkley’s leadership on foreclosure issues will open the door to refinancing for a new set of struggling homeowners,” said Margaret Van Vliet, director of the Oregon Department of Housing and Community Services. “We’re excited to help pilot a program that may serve as a national model for foreclosure programs around the country.”
Oregon is the first state to create such a program using money awarded by the Treasury’s “Hardest Hit” fund. Other states are considering implementing a similar program using money from this fund to help their distressed borrowers.