WASHINGTON The Obama administration on Wednesday argued against expanding a program that allows some borrowers with Fannie Mae FNMA.OB and Freddie Mac FMCC.OB loans to lower their interest rates even if they owe more than their homes are worth.
Currently, homeowners whose loans are backed by the government-owned housing finance giants can qualify for the program if they took out loans by May 31, 2009. Some housing advocacy groups and lenders have lobbied to allow people to qualify if they took out more recent loans as well.
But U.S. Treasury Department's housing adviser Michael Stegman, in a speech delivered in Las Vegas at an industry conference, said changing the HARP eligibility date is unnecessary. He said altering the program would do "more harm than good by prolonging" market and investor uncertainties.
"Very few homeowners whose loans were originated after the cut-off date are underwater," Stegman said at the Structured Industry Finance Group conference, according to a text of his remarks.
Nearly 3 million homeowners have refinanced under the HARP program, including close to 1 million who owed more than their home was worth. More than 2 million borrowers are still HARP-eligible, Stegman said, and could refinance even if the cutoff date is not changed.
Such a policy change would impact bond investors who might lose money if more borrowers ended up refinancing.
Stegman also backed the creation of a HARP-like program for non-Fannie and Freddie loans, which would help the real-estate markets hit hardest by the housing boom and bust. The effort would require action by Congress.
"We must not forget about the inability of performing underwater borrowers whose loans are held in private label security trusts to access refinancing," he said.
He said Fannie Mae and Freddie Mac are still ripe for reform, despite the consecutive quarterly profits the companies have posted since 2012.
It is "good news that (Fannie and Freddie) have generated record earnings," but many of those profits are one-time gains or the firms will see changes in their investment portfolios since they are required to shrink by 15 percent per year going forward, he said.
Comprehensive housing finance reform remains "a top administration priority," he said. "We are hopeful that comprehensive, bipartisan housing finance reform is achievable this year."
Until Congress finds a solution to overhaul the mortgage market, Treasury will aim to transition towards a system in which Fannie Mae and Freddie Mac issue a single security, he said.
"This would reduce the cost to taxpayers and improve liquidity," he said.
The companies almost collapsed in 2008 as a growing number of loans they backed went sour. The government kept them alive with $187.5 billion in taxpayer aid. They have since returned to profitability and paid about $185.2 billion in dividends to the government thanks to a surge in the U.S. housing market.
(Reporting by Margaret Chadbourn; Editing by Cynthia Osterman)