Housing Recovery Still Dependent On Government

The housing market at this time continues to improve and show signs of recovery. The number of defaults are down and home prices are rising. Construction of new homes is increasing, as well as, very much needed employment in the construction industry. However, while everything appears to be moving forward, the housing recovery is still dependent on government involvement.

Today's mortgages are mostly held by Fannie Mae and Freddie Mac which were both taken over by the government during the housing crisis. Through these two GSE's, existing homeowners have been able to refinance through the HARP program. HARP, the Home Affordable Refinance Program, is still available until the end of 2013 and makes it possible for underwater homeowners, even those with over 125% loan to values, to move to a more stable mortgage product be it through lower mortgage rates or shorter terms. The HARP program is only available for homeowners who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009. Without the existence of HARP loans, it was expected that the amount of defaults would have been worse than what actually occurred.

The Federal Housing Administration has also been involved in the housing recovery. FHA has helped so many homeowners refinance that it put itself at risk. Due to this, FHA mortgage fees have been increasing in order to secure their own mortgage insurance fund. Once considered the mortgage giant for low to middle income households, FHA loans have been reaching out to even high end markets by having higher loan limits available to this day. Not long ago, FHA loans were looked at as sub-prime loans that did not even have minimum credit score requirements. FHA has now moved to minimum credit scores, as well as, minimum debt to income ratios (effective April 1st). In order to help homeowners refinance, FHA has offered the FHA streamline refinance program for many years. Even though this program is one of the easiest refinances available since it does not require an appraisal or any other documentation (with no cash out) it was not used much by homeowners because of the FHA fees involved. To entice homeowners to use the program, FHA reduced the fees for mortgages that were endorsed prior to June 1, 2009 which remains in effect until the end of 2013.

Looking further at government involvement, current mortgage rates are being kept low by the Federal Reserve's purchase of mortgage backed securities each month. Also known as QE 3, it is the intention of the Feds to keep rates down so that more consumers will either purchase homes or refinance existing loans. This move is intended to keep the housing market recovery moving forward, as well as, bring an increase in jobs in that industry. Federal Reserve Chief Ben Bernanke recently testified before the House Financial Services Committee and stated that these policies are supporting a weak economy. This plan has been working since mortgage rates still remain low and housing statistics have been improving.

In the end, government involvement in the housing industry did and continues to help the recovery. The full impact may not be seen until the special refinance programs have ended and the Fed's are no longer purchasing MBS. Until that time happens, consumers should take advantage of what is out there for them in order to improve their own financial situation.

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