Obama has a new plan to help owners refinance their mortgages, but some places will benefit more than others

Yesterday, the Obama administration announced a new program to attack a problem that many experts believe is holding back broader economic recovery - the stalled U.S. housing market. 

The Home Affordable Refinance Program (HARP) is actually an existing program under which nearly 900,000 borrowers have refinanced their mortgages in the past two years. The changes announced Monday would extend refinancing assistance to homeowners who owe at least 25 percent more on their mortgage than their home is currently worth.

The administration projects that another 1 million homeowners could refinance under the revised program to reduce their monthly mortgage payments. (Lowering the interest rate on a $300,000 mortgage from 5 percent to 4 percent would reduce monthly payments by about $175.) As mortgage data provider CoreLogic reports, these “underwater” borrowers are more likely than others to pay high interest rates on their mortgage loans. Their monthly payments may place difficult pressures on their household budgets and complicate their efforts to move elsewhere for jobs or other economic opportunities.

Once again, though, the numbers indicate that there is no national housing market, but a collection of metropolitan markets with widely disparate mortgage problems.

Underwater homeowners, as the accompanying map shows, are distributed highly unevenly across the country. A review of CoreLogic’s data shows that underwater mortgages account for a stunning 63 percent of all mortgages in the Las Vegas metro area (where the President announced the new plan yesterday), and more than half in the Phoenix and Orlando areas. These places rank among the worst-performing metro economies over the course of the recession and recovery. By contrast, fewer than one in ten mortgage holders in the Pittsburgh and San Antonio metro areas have larger loan balances than home values, helping to account for their relatively stronger local economic performance.

This wide spectrum of “underwater-ness” across metro areas reflects several factors, most notably the degree of run-up in house prices before the crash and the prevalence of creative mortgage finance schemes that assumed perpetually rising home values. Western and Florida metro areas, as well as a few others like Atlanta, were ground zero for these dynamics. Many Northern metro areas never saw home prices spike in the 2000s. Meanwhile, stronger lending regulations in Texas helped that state’s metro areas avoid the worst sorts of sub-prime and alternative mortgage loans.

None of this suggests, however, that metro areas outside the Sun Belt wouldn’t benefit from an expanded refinance program. Estimates indicate that the Chicago metro area has 385,000 underwater mortgage holders, the New York area has nearly 300,000, and Philadelphia has 130,000. Many could receive assistance under the new program. Their refinancing would have a much smaller proportional impact, however, than in communities where these borrowers are legion. Of course, many borrowers across the country won’t qualify for access under the expanded HARP because their loans are not owned by Fannie Mae or Freddie Mac or because they are not current on their mortgage payments. 

Even if the program turns out to be a particular boon to areas like Las Vegas and Miami (note the swing state status of Nevada and Florida), it may yet fail to greatly accelerate housing market recovery at the national scale. In the end, the administration seems to have chosen an option that it could implement without congressional approval (which was likely not forthcoming), but which risks amounting to another half-start in the ongoing battle to reduce housing’s drag on the recovery. Nonetheless, due to the deep extent of the problem in several metro markets, a reworked HAMP may provide a needed salve for continued local economic struggles.

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