Obama Makes Refinancing Easier Than Ever

The Cheat Sheet

In another attempt to bolster the sagging housing market, President Obama announced Tuesday that the U.S. government will lower fees on federally insured mortgages to help homeowners take advantage of rock-bottom interest rates to refinance their home loans.

An estimated 2 million to 3 million homeowners with Federal Housing Administration loans — made to borrowers with poorer credit scores who can’t make large down payments — would be eligible for the reduced fees, which would reportedly save borrowers about $1,000 annually, the White House said. The Obama administration has focused recently on helping more homeowners take advantage of interest rates that have been at the lowest levels ever, averaging less than 4 percent for 30-year mortgages.

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FHA borrowers can currently refinance without showing proof of their credit score, income, or a new appraisal. However, high up-front fees have been a road block for many. With the change, up-front insurance premium payments for refinanced loans will drop to an unbelievable 0.01 percent of the loan balance. This would mean a fee of only $20 for a $200,000 loan. The FHA will also lower the annual premium it charges to 0.55 percent from 1.15 percent of the loan balance, meaning a savings of many hundreds of dollars or more for most buyers.

However, only homeowners who took out loans before June 1, 2009 are eligible to take advantage of the lower fees, ruling out the majority of FHA borrowers. The FHA backs about 5.4 million 30-year fixed-rate mortgages. About 3.2 million of those were issued after the cutoff date and won’t be eligible, according Credit Suisse .

It should play out well for lenders like Wells Fargo , Bank of America , and JPMorgan though, who will probably gain from increased refinancing volume. “This should be broadly positive for housing and the economy by reducing foreclosures and freeing up income for consumers to spend on other goods and services,” wrote Jaret Seiberg, senior policy analyst with Guggenheim Securities, in a note to clients.

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