Choosing a HARP Lender: Big vs Small and Original vs. New
The HARP 2.0 mortgage refinance loan picked up speed in mid-March 2012, once Fannie Mae and Freddie Mac rolled out their automated underwriting systems for the HARP loans.
Before March 19, 2012, the only HARP lender you could work with was your current lender. After March 19, you are free to shop around for the best HARP loan available. You can work with any kind of HARP lender, both big lenders and small niche mortgage lenders.
Your first decision is whether you work with your original lender or a new lender. Not all HARP lenders are equal. Craig Repmann, managing partner of Heritage Mortgage Banking Corp. noted that small lenders often are more flexible, and said that,
"What we are seeing is that the bigger lenders have more liberal guidelines with their current customer base. Their guidelines are far more restrictive for loans they currently do not service. The bigger lenders seem to have a lot more underwriting ‘overlays.’ Small lenders that deal with Fannie Mae and Freddie Mac directly seem to have fewer overlays. An example of this is that a ‘big bank’ may cap a LTV at 125%. A small lender may accept loans with an unlimited LTV, consistent with the Fannie/Freddie guidelines and with the government’s intent expand the number of borrowers eligible for HARP loans."
To help you find the best HARP lender, you need to be familiar with some of the technical aspects and general eligibility requirements of the HARP 2.0 mortgage loan. If you are not familiar with the HARP program, read the excellent Bills.com article HARP mortgage, then come back for detailed information about HARP refinance lenders.
- Same Servicer/Original Lender – The manually underwritten loan
- New Lender / Open access – The automated loan
- Overlays & Pricing – Choosing a lender
Same Servicer/Original Lender: The Manually Underwritten Loan
The HARP program allows for a fundamental difference in qualifying for a loan between the original lender (who is also your current servicer) and a new lender. You original lender has two advantages:
- The option of qualifying the borrower under less stringent underwriting rules, including no DTI requirement and no minimum credit score. (Unless your monthly payment increases by more than 20%, in which case the lender must use regular underwriting practices).
- The lender has less stringent warranties and representations regarding the loan, which is a technical term that means that they have less chance of being forced to buy-back your loan from Fannie Mae or Freddie Mac.
These two factors have given the original lenders a big advantage.
Many of the original lenders and current servicers are the Big Banks. According to testimony given by Laurie Goodman of Amherst Securities Group on April 25, 2012 to U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Housing, Transportation and Community Development, 50% of all HARP eligible loans are serviced by three Big Banks. These lenders had a head start from December 1 2011 to March 19 2019 when the automated systems were not operable. All indications (including many Bills.com readers’ comments) point to the fact that the Big Banks have been charging higher prices, both in interest rates and mortgage fees, taking advantage of the lack of competition allowed.
New Lender / Open Access: The Automated Underwritten HARP Loan
Since mid-March any lender that is authorized to work with the Fannie Mae and Freddie Mac systems can offer a HARP loan.
The major changes in the HARP loan allowed for unlimited LTV, more usage of the automated appraisal systems, more HARP products including 15 year FRM (although these won’t be deliverable to Fannie Mae until June 1, 2012).
Since March 2012, there has been increased competition as the big banks have been forced to compete with other participating HARP lenders.
Almost all borrowers can choose their HARP lenders, although there are a few instances whereby you are still restricted to working with your current servicer, including:
- High Debt to Income Ratio
- Your loan is a high-risk loan that Fannie Mae or Freddie Mac has disqualified from the HARP program, due to lender’s credit enhancements or other secondary market issues.
If one lender turns you down, that does not mean no one will work with you. Any time you’re turned down, make sure that you receive an exact reason for the denial. You may have been turned down due to not meeting general HARP eligibility requirements, or it may be due to not meeting a lender’s specific underwriting rules. Each lender sets their own underwriting guidelines, and lender guidelines can be stricter than the basic HARP guidelines. Guidelines vary from lender to lender.For example, HARP allows for unlimited LTV on a 30-year FRM, but many HARP lenders limit their HARP loans to 125%. Some cap the LTV at 105%.
Overlays & Pricing: Choosing a lender
As mentioned, each HARP lender sets their own underwriting guidelines (called “overlays”) for the HARP refinance loan. It must meet the minimum HARP eligibility requirements. The main areas to look at are:
- FICO scores: The HARP 2.0 loan does not generally require a minimum FICO score. However, most participating HARP lenders require a minimum FICO score of 620 and price their loans based on your credit score. Shop around for a lender will both approve your loan and offer you a good interest rate.
- LTV: Although the HARP 2.0 loan allows for an unlimited LTV, many lenders are setting restrictions. Some big banks are not allowing for LTVs over 105%, if you are not an existing customer. Other lenders are limiting the LTV to 125%. If you have a high LTV then you will need to search harder to find a participating HARP lender.
- Condominium: There are differences between Fannie Mae and Freddie Mac requirements regarding condominium projects, although both do allow for HARP loans. (Freddie Mac has stricter rules. Participating HARP lenders’ guidelines vary so shop around.
Leveling the Playing Field: Finding Your HARP Lender
Finding the right HARP lender is a challenge.
There is currently talk about changing HARP rules or a HARP 3 program first draft in. The Mendenez-Boxer Bill is one proposed fix. It aims to even out the underwriting requirements between new lenders and original lenders. However, it is questionable if this Bill will be passed.
Here are some of the problems in the existing HARP program:
- Your original lender can more easily qualify you. However, they are cherry picking from their client base and then creating barriers for riskier clients or new clients. In addition, they are generally pricing their loans higher.
- New lenders have additional underwriting criteria and more responsibilities to Fannie Mae and Freddie Mac. Partially in order to protect themselves, they have created more overlays than the HARP program requires. Lenders vary between the types of customers and properties they are willing to deal with.
In some cases, you will have to shop around to find a lender who will approve your loan and in all cases, it pays to shop around for the best rates and terms.