Mortgage bailout set to expire amid positive findings

2/18/2014 11:35:38 AM

It's been nearly five years since President Barack Obama signed into law the Home Affordable Modification Program, and the housing market has recovered well since then. However, the program is set to expire fairly soon, bringing up a debate over what will happen in the mortgage market.

In the Obama administration's January Scorecard released by the Department of Housing and Urban Development, it was revealed that home equity was up $3.4 trillion since the beginning of 2012. Additionally, home sales reached their highest levels from the last few years and foreclosure starts were way down, indicating that the housing initiatives set in place have had great success.

"The January Housing Scorecard shows that the Obama administration's efforts continue to have a positive effect on the housing market," said Kurt Usowski, deputy assistant secretary for economic affairs at the HUD. "In 2013, the number of U.S. properties which started the foreclosure process was down 33 percent from 2012, while sales of previously owned homes rose by 9.1 percent. With foreclosures down, home sales up, and equity continuing to grow, the housing market continues to make slow, but steadily improving progress."

Mortgage rates set to rise
While there have been great improvements in the housing market and more opportunities for Americans to become homeowners, the program will soon come to an end - and many economists expect mortgage rates to rise as a result.

In May 2013, the Obama administration extended the deadline for the program through Dec. 31, 2015, in order to ensure that more homeowners would be able to take advantage of it. The program guarantees homeowners a low rate mortgage for a certain period of time. In this case, the original plan was five years. However, because many homeowners are still struggling and there is still more work to be done in the housing recovery, the administration granted an extension.

"The housing market is gaining steam, but many homeowners are still struggling," said Jacob Lew, Treasury secretary. "Helping responsible homeowners avoid foreclosure is part of our wide-ranging efforts to strengthen the middle class, and Making Home Affordable offers homeowners some of the deepest and most dependable assistance available to prevent foreclosure. Extending the program for two years will benefit many additional families while maintaining clear standards and accountability for an important part of the mortgage industry."

CNBC reported that 30,000 borrowers who have taken part in the program will see their rates start to rise 1 percent in the fall. Rates will continue to increase until reaching the market value, which currently hovers around 4.5 percent for a 30-year fixed-rate mortgage. Monthly mortgage payments are set to increase for 88 percent of borrowers in the program. Fortunately, the market mortgage rate is still relatively affordable for most American homeowners, though interest has risen nearly 1 percent from a year ago. For most borrowers involved in the Home Affordable Modification Program, mortgage rates will not rise until September.

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