New federal plan to fix housing market criticized by lawmakers

Treasury Secretary Timothy Geithner recently told lawmakers that the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, is working with the Obama Administration to develop a new plan to help more homeowners take advantage of the current low mortgage rates to obtain a home loan, refinance a mortgage or modify a loan. The plan would help the many homeowners currently unable to take advantage of the historically low mortgage rates because they do not meet the strict criteria lenders require for borrowers to qualify.

The FHFA, however, has not publicly committed the two government-sponsored lenders to participate in a program to aid struggling homeowners, frustrating the administration and Democratic lawmakers, Reuters reported. Both the administration and Democrats in Washington want the FHFA to agree to changes that would allow the Home Affordable Refinance Program to help the 11 million borrowers with underwater mortgages.

Bloomberg reported that at a meeting with 17 Democrats, Edward DeMarco, the director of the FHFA, said he will fix HARP, which currently allows borrowers to take new loans for up to 125 percent of their home's value. Representative Elijah Cummings from Maryland said raising the maximum loan-to-value ratio above 125 percent could help 600,000 to 1 million borrowers avoid foreclosure.

According to the source, DeMarco questions Cummings's estimates but plans to reveal his new plan later this month.

“It is premature to estimate how many borrowers will refinance as a result of these efforts,” DeMarco said. “Our goal is to provide expanded refinance opportunities for all HARP-eligible homeowners and for the changes to have a meaningful impact.”

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