HARP didn’t work the first time and it’s not going to work now.
An article in Banker and Tradesman, Lenders: HARP Re-Do Faces Same Pitfalls as Original Program, outlines lender reluctance to participate in the HARP Program as one of the main reasons it won’t work. This article spells out why it won’t work better than any other article we have seen. In the article, a local mortgage broker says, “Why would Wells want to start servicing a loan that Chase has been servicing if it’s dramatically underwater?”
He could not be more right about that. Loans that are underwater are far more likely to become delinquent and the last thing these big banks need is more delinquent loans that cause them a lot of trouble. In November Massachusetts Attorney General Martha Coakley filed a lawsuit against five major banks for deceptive loan servicing and pursuing illegal foreclosures.
The HARP Program will not help homeowners whose mortgage originated prior to June 2009, and it won’t help people facing foreclosure. It has all the right intentions but it just won’t work.
The revised Home Affordable Refinance Program, also known as “HARP 2.0,” took effect on December 1, 2011, and allows qualified borrowers to take advantage of low interest rates. Approximately 890,000 homeowners have used HARP to refinance their mortgages since the program started in 2009.
The previous version of HARP only assisted homeowners with a loan-to-value (LTV) ratio of between 80% and 125%. An LTV ratio shows you how much of your home is being financed. You calculate your LTV by dividing the loan value by the value of the home. For instance, if your home is worth $100,000 and your loan is $80,000, then your LTV ratio is 80%.
Most homes have lost value since the mortgage crisis which made them ineligible for a typical refinance or even the previous version of the HARP program.
Now homeowners who owe more than 125% of their home’s value are eligible for HARP 2.0. Other eligibility requirements include: the mortgage must be owned by Fannie Mae or Freddie Mac and you must be current on their mortgage payments with no late payment in the past six months.
Problems with HARP 2.0
Even with Fannie Mae or Freddie Mac guaranteeing the loan, lenders may impose their own stricter additions, known as “overlays,” to the guidelines. They do this in an effort to decrease the amount that will get approved because they simply do not want them.
HARP allows lenders to refinance mortgages that are being serviced by a different company and most banks would rather stick with loans they own. No bank wants more underwater loans. Some borrowers may only be able to qualify for HARP by going to their current mortgage servicer, rather than shopping around for the best rate. This makes it much more challenging for homeowners. And since the program is voluntary, some lenders won’t even participate in the HARP Program.
Lenders must include warranties in the loan contracts concerning the quality of the loans they sell to Fannie Mae and Freddie Mac. If the loans go into default, Fannie Mae and Freddie Mac can force the lenders to buy them back. They’re much more cautious about agreeing to service loans that will be underwater and more likely to go into default.
So in order to protect themselves, lenders will make additional guidelines to HARP, which will make it much more difficult for homeowners to get their loans refinanced.
The revised HARP Program won’t work because even if your lender participates in the program, their requirements for eligibility may differ from the program’s initial guidelines and may be stricter, which means you may not even be able to take advantage of the program.
It doesn’t solve the problem of your home being underwater even if you do qualify for the program. HARP doesn’t reduce the mortgage principal, so even after successfully refinancing, the home will still be underwater.
For more information on this story see Lenders: HARP Re-Do Faces Same Pitfalls as Original ProgramDo You Qualify?