You have been given a two-year extension to refinance your underwater home.

The Home Affordable Refinance Program had been scheduled to expire at the end of this year. Now it will expire at the end of 2015, at the direction of the Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac.

HARP — a disappointment

HARP began about four years ago. According to the FHFA, more than 2 million homeowners have refinanced their underwater mortgages under the program in those four years. When the program was announced, the Obama administration expected 2 million refis in just 16 months. So, to get to 2 million refis, it took three times longer than initially estimated.

The Obama administration apparently believes borrowers are ignorant, inattentive and lazy, and that’s why we haven’t refinanced under HARP in greater numbers. In today’s announcement, the FHFA says it “will soon launch a nationwide campaign to inform homeowners about HARP” and will “motivate them to explore their options.”

Many borrowers aren’t qualified

Then the FHFA lists the five criteria for HARP eligibility. Bankrate shows the criteria in this easier-to-understand HARP eligibility flowchart. Now, the FHFA thinks homeowners aren’t aware of HARP and they’re not motivated, and that’s why the number of HARP refis isn’t higher. But I think the problem begins with those eligibility criteria.

The first criterion is that the loan must be owned by Fannie or Freddie. A lot of homeowners are stuck with unrefinanceable underwater mortgages because a bank owns the loan. I humbly suggest that the feds come up with another eligibility criterion: If banks want to be eligible for FDIC deposit insurance, require them to refinance underwater mortgages that they own. That would give banks three options.

  • Refinance the loans.
  • Relinquish deposit insurance and scare depositors away.
  • Sell the loans to Fannie or Freddie.

If the number of refinances is disappointingly low, it’s not because we’re ignorant and unmotivated. It’s because financial institutions and regulators thwart us at every turn.

Now you have two more years to fight to get the refi you want. Good luck with that!

Follow me on Twitter @HoldenL.

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