If at first you don’t succeed, try, try again …that seems to be the game plan for the Obama Administration’s Home Affordable Refinance Program. After version 1.0 failed to produce substantial results to assist homeowners who are underwater, it appears that looser guidelines are the next salvo in the fight to re-invigorate the ailing housing market.
The plan calls for relaxed underwriting standards that allow for looser requirements for appraisals, higher loan to value ratios and allow heavy reliance on consistent payment histories. The program would waive various requirements for lenders and reduce risk based fees for loans (see the details here).
One of the demographics hardest hit by the housing downturn has been the Baby Boomer generation and the 65+ generation. Both face challenges such as the prospect of job loss, diminished and/or fixed incomes and rising costs of healthcare. All of these issues create problems when trying to qualify for a home mortgage loan, some directly and some indirectly.
What does this new plan do for senior housing?
- The new HARP program will theoretically lower monthly mortgage payments and increase cash flow by varying amounts but could range from $100-$300 per month depending on the amount of debt and the prior interest rate.
- The plan fails to address the negative equity situation through recasting loan balances where homes are underwater. This provides little assistance to those who are having difficulty selling their homes at a loss, break-even or lower than the equity envisioned in their minds.
- Independent living communities will not see any great benefit as their will be no new equity created to help ease the pain associated with the sale of the home.
- The new plan will further highlight the demand for affordable housing for seniors. If $100-$200 extra cash flow makes a substantial difference to elder homeowners, it’s highly likely that there is not enough affordable rental housing available for the growing number of seniors.
- Home and Community Based Care programs may see stronger growth over the next 4-5 years if the program can create better personal cash flow for the 50+ demographic that can be used for these services and have people remain in their homes. If a homeowner can squeeze $100+ month in new cash flow, suddenly a monthly charge for some kind of home monitoring doesn’t seem as bad.
In the end, any reduction in the monthly mortgage payment for borrowers who are 50+ will be new disposable income that will make them happier in the short run but do little to nothing to deal with the decline in equity in their homes. Younger borrowers may use the monthly payment savings and pay down their mortgages further and boosting the equity in their homes. On the other hand, older borrowers will more than likely use the extra cash flow for daily living expenses.
The plan will probably provide added impetus to remain in their current homes for 2-3 years longer than originally anticipated or until a life changing event occurs. If the 50+ population is able to participate in the revised plan, Obama may pick up a few votes in November 2012 that he was likely to lose once the Republican attacks start coming on stronger during the upcoming presidential campaign.
Is this program revision revolutionary? Nope. Just evolutionary and further evidence that housing and economic policy are inextricably linking with the US government’s policy on aging.
Written by George Yedinak