Getting Sen. Merkley's Refinance Program Moving
Update: On April 1, 2013 the Loan Refinancing Assistance Pilot Project (LRAPP) program began to accept applications from residents in Deschutes and Jackson counties, areas where the foreclosure crisis has been particularly severe. The pilot program is very limited in scope, but has the potential to test out a HARP 3 type program.
Oregon’s Hardest Hit Fund Organization announced a pilot run of Sen. Merkley’s (D-Oregon) Rebuilding American Homeownerhip (RAH) 4% mortgage program. The RAH is the first "HARP 3.0" loan program, of the ones proposed so far, that would be available to all underwater borrowers.
Outside of RAH, underwater borrowers who do not have a Fannie Mae or Freddie Mac loan that is eligible for the HARP program, or are eligible for a VA or FHA streamline refinance, have no refinance opportunities. Although Congress has talked about expanding the HARP program,so far, there has been no concrete action.
Some of the main HARP 3.0 proposals are:
- Boxer-Menendez Bill: In January 2013, the Boxer-Menendez Bill was re-introduced. Teir Bill focuses on helping HARP-eligible homeowners.
- President Obama's #MyRefi mass refinancing plan for all underwater borrowers, a plan he reemphasized in his January 2013 State of the Union address.
- Rebuilding American Homeownership: In line with Pres. Obama’s mass refinancing idea, Sen. Merkley (D-OR) outlined a detailed refinance plan, the Rebuilding American Homeownership (RAH) for underwater homeowners.
RAH: Background about Sen. Merkley's 4% Mortgage
The aim of the loan is to offer underwater borrowers an opportunity to refinance at low interest rates. Here are the proposed loans:
- 15-year FRM (Fixed Rate Mortgage): 4% interest rate.
- 30-year FRM: 5% interest rate.
Sen. Merkley’s RAH program provides an opportunity for all underwater borrowers to refinance, as long as they meet two general criteria:
- They are current on their loans.
- They meet ordinary underwriting criteria (e.g., debt-to-income ratio and credit requirements).
The RAH program was introduced in July 2012, during the election season. Sen. Merkley published a working paper, proposing the 4% mortgage for 15-year loans. Since that time, there has been no legislation to push the program forward.
The RAH Pilot Program (RAHPP) - Multnomah County, Oregon
The first pilot of Sen. Merkley’s proposal will be in Multnomah County, Oregon. This is the most populated area in Oregon, with a population of about 735,000, and includes the Portland area. The pilot program will be run through the Oregon Home Stabilization Initiative. The details of the program have not been released, including the manner the loans will be funded, guaranteed, and sold off, eventually allowing for more loans to be generated. (The first batch would be about 50 loans at $2000,000 each).
The exact underwriting requirements have not been released; however, according to the OHSI website, the limited pilot will begin in April 2013 and some of the eligibility criteria are:
- "Significant negative equity on mortgage
- "Intention to remain in home for 5+ years
- "Owner of no other residential property
- "Current on mortgage
- "Reside in Multnomah County"
Although Multnomah County is not the hardest hit area in the United States, it has also suffered from the housing crisis and economic downturn. Here are some statistics from the US Census Bureau (2012) about Multnomah County, Oregon:
|Median Value of Home (Owner Occupied)||$281,900 ( 166,916 units)|
|Total Housing Units||322,567 (61% are 1-unit)|
|Occupied Housing Units||302,224 (about 94%)|
|Mortgage Status (Owner Occupied)||127,363 units with mortgage (about 76%)|
Housing prices in Oregon have dropped more than 33% since hitting their peak in 8/2006 and their low in 2/2012. During the first nine months of 2012 Oregon's housing prices increased by 9%. The graph below shows a comparison of housing prices between 2002-2012 in Oregon, California, and the US average.
Here are January 2013 foreclosure rates, based on information provided by Realtytrac.com:
- USA Nationwide 1:869
- Oregon 1:2636
- Multnomah County 1:1621
RAH – Will HARP 3 Take-off?
The RAHPP is a big step in starting Sen. Merkley’s 4% Mortgage program. The pilot will provide a framework to test the plan, adjust and improve it, and then to present it to the Senate for legislation.
As currently presented, the plan will begin in April 2013 and be available to a very limited amount of underwater borrowers in a very restricted geographical region. For the underwater borrower there are still many points missing, including the exact underwriting criteria (credit scores, DTI, LTV – what is significant negative equity?), lender fees, and appraisal requirements. It is also not clear how the program will be funded and the loans either guaranteed and/or sold to the secondary market.
The mortgage rate offered, 4% for a 15-year FRM or 5% for a 30-year FRM are not cheap. (It is still not clear what type of fees lenders can take); however, for some borrowers, this may be great opportunity to get into a lower interest rate and/or lower monthly payment.