Ruth Simon Wall Street Journal 4/10/09

Some of the nation’s biggest lenders, including Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co., are beginning to roll out a new program established by the Obama administration as part of its housing-rescue plan to help refinance homeowners who otherwise couldn’t get new loans.

In February, President Obama announced a $275 billion plan to stabilize the housing market and reduce foreclosures. One key component: a plan to allow as many as five million homeowners to refinance their mortgages, even though they have little equity or owe slightly more than their home is worth.

The program is open to borrowers who are current on their payments, have loans owned or guaranteed by government-controlled mortgage giants Fannie Mae or Freddie Mac and owe between 80% and 105% of their home’s current value.

Home-mortgage rates rose this week, but the average rate on 30-year fixed-rate mortgages remained below 5%, according to Freddie Mac’s weekly survey of conforming mortgage rates, released on Thursday. The 30-year fixed-rate mortgage averaged 4.87%, down from 5.88% a year ago. Rates on 15-year fixed-rate mortgages averaged 4.54%.

The rollout of the program has been eagerly awaited by homeowners who want to take advantage of lower mortgage rates but don’t have enough equity to do so, either because of falling home prices or because they financed more than 80% of their home’s value and now can’t qualify under today’s tighter lending standards.

Mark Bank, a manager of rehabilitation services in Buckeye, Ariz. , says he can’t qualify for a traditional refinance because the value of his home is close to the $378,000 mortgage amount.

Refinancing under the Obama plan could cut his payments by about $235 a month, says Mr. Bank. “I’d put that back in the economy,” he adds.

Bank of America, which rolled out the program, says it has received inquiries from nearly 200,000 homeowners looking to refinance under the program and has taken about 4,000 loan applications this week. SunTrust Banks Inc., which also is taking applications from some of its customers, says “interest in the program has been good but not unmanageable.”

Many lenders are implementing the program in stages. Citigroup, for instance, says it will begin taking applications for borrowers with Fannie Mae loans and will begin accepting Freddie Mac applications as soon as it has made the changes in its system needed to handle those loans.

BofA and Wells Fargo aren’t currently taking applications from borrowers who have mortgage insurance because some of the details of that part of the program are still to be worked out.

“We don’t have guidelines from the mortgage-insurance companies on how to transfer policies from one [loan] to another,” says BofA mortgage product executive Vijay Lala.

About one-third of borrowers who are eligible for the program currently have mortgage insurance, a Fannie spokesman says.