Quick Hit Ellyn Fortino Friday July 11th, 2014, 2:47pm

FHFA: 36,000 Underwater Chicago-Area Homeowners Eligible For Refinance Program (VIDEO)

Thousands of Chicago-area residents are eligible for, but have not taken advantage of, the federal Home Affordable Refinance Program, or HARP, which provides refinance opportunities for certain underwater homeowners.

Nearly 36,000 borrowers in the Chicago metro area are eligible to save between $2,000 to $3,000 annually by refinancing their mortgages as part of the program, according to the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac.

FHFA Director Mel Watt was in Chicago this week to get the word out about HARP's benefits and encourage eligible borrows to apply for the program, designed for homeowners who have remained current on their mortgage payments and whose homes are worth less than the outstanding mortgage debt.

Through HARP, qualified borrowers can refinance their mortgages with a lower interest rate, get a shorter loan term or switch from an adjustable to fixed-rate mortgage. For a homeowner to be eligible for HARP, their loan must be owned or guaranteed by Fannie Mae or Freddie Mac.

Since the federal program launched in early 2009, 3.1 million HARP refinances have been completed as of April of 2014, according to the FHFA. The refinances, including about 186,000 in the Chicago area, have saved homeowners an average of $191 per month.

"We've got approximately $72 million that we would like to give away to people in this metropolitan area" through HARP, Watt said at a Tuesday town hall meeting at Chicago's Carter G. Woodson Regional Library. "People won't come in and say, 'I want that money' ... There is no downside to this. This is just free money."

The Chicago meeting with housing experts and community leaders was the first in a series of new HARP outreach events the FHFA will hold in cities across the country in the next several weeks. In addition to Watt, representatives from Fannie Mae and Freddie Mac, the U.S. Treasury, Wells Fargo Bank and the Neighborhood Housing Services of Chicago, Inc. (NHS) took part in the talk. U.S. Rep. Bobby Rush (D-IL,1), Cook County Commissioner Bridget Gainer and members of community organizations such as the Albany Park Neighborhood Council also attended.

One reason many eligible borrowers have not tapped HARP could be due to the fear of housing-related scams, officials said.

"I think one of the things that we've done in the last few years, rightfully so, has been ... to say, 'Be very careful,'" said NHS Executive Director Ed Jacob. "Everyone in this room needs to do a better job to say, 'We have warned you about those scammers who are out there, but this is a real program that will put money back into your pocket, that will give you money to spend on your kids, on your family, on other things that you need,' and make sure that we all do a better job reaching out to that segment of the community."

HARP is scheduled to end in December of 2015, but Kristy Williams Fercho, senior vice president and head of customer engagement for Fannie Mae in Chicago, said homeowners should not put off applying for the program. That's because one of the requirements of HARP is that a homeowner's mortgage interest rate is 1.5 percentage points higher than the market rate.

"We have enjoyed historical low interest rates, and as those interest rates rise … that number [of borrowers eligible for HARP] gets smaller and smaller," she said. "Before the rates rise, we want to be able to get those folks, so the time really is now."

Here's video of the full town hall meeting, courtesy of CAN TV:

More than one in five Chicago-area homeowners are underwater, shows a recent report from CoreLogic. The Chicago region, according to the report, has the second-highest rate of negative equity in the country. Research from the Woodstock Institute also found that homeowners with mortgages in African-American communities in the Chicagoland area are more than twice as likely to be underwater as homeowners in white communities.  

At Tuesday's town hall, Watt announced that a new FHFA pilot program called the Neighborhood Stabilization Initiative, meant to help communities that have been impacted the most by the housing crisis, will be coming to certain areas of Chicago in the near future. NSI was recently launched in Detroit. The main goals of the program are to increase the number of families able to stay in their current homes through loan modifications that reduce monthly principal and interest payments; effectively match distressed properties with responsible non-profits for property renovation and resale; and help hard-hit communities in executing building demolition plans, according to a FHFA fact sheet.

Katie Buitrago, the Woodstock Institute's senior policy and communications associate, said in an interview with Progress Illinois that there should be a nationwide program allowing principal reductions on loans that are backed by Fannie Mae and Freddie Mac, specifically to help underwater homeowners.

"There's a lot of research out there that shows reducing the mortgage amount, not just the interest rate and the loan term, is really effective at preventing foreclosure, but FHFA prohibits Fannie and Freddie from making principal reductions like that," she said. ""[We would like] for them to change their policy so that they no long prohibit it, because we know there are other ways of working around it, but they're not as effective."

Buitrago explained that underwater homes are problematic for a number of reasons.

"Part of it is that the payments might be unaffordable, which is what a program like HARP addresses, because it makes the monthly payments lower," she said.

But owners of underwater homes are also "less likely to invest in the maintenance of the home because they don't have any equity they could use to get a home repair loan," Buitrago added. "They're unable to move. If they get a job somewhere else, then they're more likely to go in foreclosure, and HARP doesn't really get at those issues that are caused by the fact that the home is worth less than the mortgage amount, and so that's why we need a program that allows homeowners to reduce the mortgage amount."

Another request of the Woodstock Institute is that the FHFA reevaluate its overall policy that prohibits selling a home in foreclosure to a non-profit, if the non-profit's aim is to sell or lease it back to the original homeowner.

"It's a model some places are trying out, where the idea is to keep people in their homes even after the foreclosure process," Buitrago explained. "The non-profit will buy the home at [a] foreclosure auction, but then either sell it or rent it back to the original owner. Fannie and Freddie policy prohibits that, so we asked (FHFA officials) whether they'd consider changing that ... We hope they reconsider this policy sooner rather than later, since lots of families still need help."

At the end of the town hall, Watt acknowledged that the FHFA and its pilot NSI program "cannot solve every issue that exists in our community." But he noted he "will try to go to the extent of my limitations" as FHFA director. 

"We will continue to do this as aggressively and thoughtfully as we can, but if you set an expectation that is so unreasonably high that I can never reach it, I have to be honest with you and tell you that I don't have the authority or resources or power to do that," he added.

"For us to ... say we can solve every problem that exists is unrealistic, and I have to start by acknowleding the limitations, and you should aknowledge the limitations that I have," Watt said.

Learn more about HARP here.

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