Obama Passes HARP- HARP 3.0 Mortgage Refinance Next?
- 7 min read
Obama Passes HARP 1.0 and HARP 2.0... and now HARP 3.0 Mortgage Refinance Programs?
March 2015 Update
Unfortunately, neither a new HARP 3 program, nor an improved HARP 2 program were passed into action.
In a previous update from January 2014, we mentioned that there was hope that the new director of the FHFA, Mr. Mel Watt, will more aggressively push for a HARP 3 program. Many of Watt's proposals were similar to ones proposed by President Obama in his #myrefi mass refinance program.
However, for many borrowers, the rise in home prices has pushed their mortgage into a loan-to-value ratio (LTV) that allows for a regular refinance at today's low mortgage rates.
Are you underwater? Even with rising home prices, there are still millions of homeowners who can’t refinance. The HARP 2 program was announced in October 2011, and rolled out in March 2012. Since then, there have been many ideas floated, but no substantial HARP 3 program has been implemented.
The two main problems with the existing HARP refinance program are that:
- Borrowers that meet Fannie and Freddie guidelines are still unable to find a lender that will approve a HARP 2.0 loan.
- Loans not owned by Fannie Mae and Freddie Mac still do not qualify.
Will there be a HARP 3.0? If there is a HARP 3.0, what form will it take? In order to help you find a refinance loan that fits your need, learn more about:
- Almost HARP 3 - Improving HARP 2
- HARP 3.0: Getting a New Program
- HARP 3.0 and You
HARP 2 Updates
The HARP mortgage program was extended until December 31, 2015. Read the Bills.com HARP 2 mortgage page for the latest updates about HARP.
Almost HARP 3: Improving the HARP Mortgage
One simple idea is to make minor tweaks to the HARP program, making it available to more borrowers with Fannie Mae/Freddie Mac loans. This would not technically be a HARP 3 program, but an "almost HARP 3" program.
The HARP 2.0 program worked along these lines, making important changes in the existing HARP program to expand the number of eligible borrowers. In order to get more borrowers into the program, HARP 2.0:
- Removed LTV restrictions
- Eased qualifications for borrowers and types of property
- Increased cooperation between the mortgage insurance companies and the lenders
- Increased cooperation by second lenders to subordinate their mortgages
Problems with the HARP 2.0 program:
Stricter Lender Requirements: Even though many borrowers meet the general HARP requirements, lenders are not approving their loans. If approved, lenders offer high interest rates and fees. For example, even though the HARP 2.0 program eliminated the 125% LTV requirement, many lenders created their own stricter underwriting requirements. This includes offering loans only at lower LTV levels, requiring higher credit scores and lower DTI (debt-to-income) ratios than the HARP guidelines require, and limiting certain qualified types of properties.
Lack of competition: Up until March 19 2012, the HARP 2.0 program was open only to the original lenders (current servicers) through a manual underwriting process. The big lenders, who solicited their preferred borrowers, dominated the HARP mortgage loan market. The March 19 rollout of the automated underwriting systems has increased competition, with many mid-size lenders entering the market. In addition, as attested by comments sent by Bills.com readers, the big lenders have dropped their interest rates. However, the playing field is not level, as Fannie Mae and Freddie Mac granted the manual loans with easier conditions and less warranties and representations, meaning less risk for the lender. This risk factor has driven some lenders into stricter lending requirements and higher interest rates.
Here are some "Almost HARP 3" Ideas
Menendez-Boxer proposed legislation: Senators Menendez (D-NJ) and Boxer (D-CA) have floated ideas for new legislation that would level the field by making the new lender’s risk the same as the original lender’s risk. They also propose eliminating some of the stricter requirements that exist in the automated system. So far, they have proposed their legislation three times with no success.
Shopping and Competition: Not all lenders offer the same rates. It is your job to shop around and look for the best deal. Look for a lender that will meet your situation with a competitive interest rate.
Are you eligible for HARP?
bills.com can help you find harp loans. with rates at historic lows, it pays to apply now.
HARP 3.0: Getting A New Program
Many borrowers do not have Fannie Mae- or Freddie Mac-owned or guaranteed loans. Underwater borrowers with loans owned by banks and private investors don’t have an alternative HARP program.
Before the mortgage meltdown, many borrowers who did not meet lenders’ strict underwriting guidelines took non-conventional loans, which were held by the banks or private investors. For example, there were many self-employed borrowers with good, but not always verifiable income, and borrowers whose loans did not meet the conforming loan limits. That means that responsible borrowers who are making their payments on time can’t refinance into a program that will lower their payments and make their mortgages more affordable.
Here are some of the HARP 3 Proposals:
Obama Mass refinance plan: January 2012 President Obama announced a plan to extend the HARP program to new loans not owned by Fannie Mae and Freddie Mac. The plan calls for the government, through the FHA, to guarantee the new refinance loan. Here are some of the main points:
- Loans must meet the HARP eligibility requirements, but do not need to be held by Fannie Mae or Freddie Mac.
- A streamline process including a minimum FICO score of 580, and no appraisal.
- The FHA guarantees the new refinanced loans.
- Impose a bank tax to finance the cost of the program.
Sen. Merkley’s Rebuilding American Homeownership Proposal: In July 2012, Sen. Merkley proposed a mass refinancing program for all underwater borrowers. His plan called for easy underwriting criteria, no fees, and a rate of 5% for a 30-year loan or 4% for a 15-year loan. (This was before mortgage rates increased in mid-2013). Sen. Merkley’s home state, Oregon, recently expanded their Rebuilding American Homeownership Assistance Pilot program to include a third county in Oregon.
Treasury "Market Rate Modification Proposal": In 2012, there were reports of expanding the HARP program to non-GSE - Fannie Mae and Freddie Mac - loans. One such proposal, the Treasury "Market Rate Modification Proposal" would allow an interest rate reduction to underwater borrowers who meet hardship eligibility requirements and are current on the loan. No progress has been made with this proposal.
HARP 3.0 Mortgage and You
HARP 3.0 - Will a new program happen? So far, there has been no progress to implementing a HARP 3 program. However, with the appointment of the new FHFA director, Mr. Mel Watt, there are expectations for a revision of the current HARP program and maybe even an extension to a full-blown HARP 3 program.
However, take into account two major changes in the housing and mortgage markets:
- Home prices increased in 2013. This has helped many borrowers climb out of their negative equity hole, making it possible for them to refinance under a normal mortgage program.
- Mortgage rates increased in 2013. As mortgage rates increase, you save less money by refinancing.
HARP 3 Mortgage - Refinance Underwater Home
Where does that leave you? If you are an underwater borrower, but can’t find a refinance plan then take these steps:
- Check who owns your loan.
- If your loan is a Fannie Mae or Freddie Mac loan check out the HARP 2.0 mortgage plan. Find out the exact reasons for the denial. Sometimes it is lender’s overlays, or lack of ability to work with your mortgage insurance company. Even if one lender turns you down, keep shopping.
- If your loan is a FHA or VA loan, then look into a streamline finance. It can be possible to refinance even if your LTV is over 100%.
- If your loan is a non-conventional loan, then look for any updates on this page regarding the HARP 3.0 mortgage refinance.
- Keep making your payments. One of the requirements for a HARP loan is timely payments. Even though the program allows one late payment (30 days) in the second half of the 12 months, many lenders will not approve loans if there are any late payments during the entire year preceding the application.
- If you can’t make your payments, then look into a modification, including the HAMP program or a streamline modification.
- Bookmark this page and watch for updates on the HARP 3 program.
What is not clear to me is why you can't refinance into a conventional loan. I understand that you are making your payments on time, but do you have enough income to meet a lender's DTI requirements? Try speaking with other lenders and, if you are turned down, be sure to find out the specific reason.
Send the QWR Certified Mail, return receipt and also fax the QWR. Keep confirmation that this has been received and follow-up with a phone call in 2 days to get verbal verification of receipt. You should also send this to your original lender (Citi) and go through the same process to get their QWR address.
This is not to be considered legal advice, so it is best to seek legal counsel on your particular situation. Most good attorneys will give you a 30 minute consultation to determine if your situation would benefit from legal representation and your options. An attorney will be able to write a very effective QWR for you, or you can research it on the internet, but I would definitely seek legal counsel to go over your options first. Spending the money to have an attorney write the QWR will be well-spent. There should be a State Bar for your state to call for a referral for a real estate mitigation attorney.
The lender is required to respond to the QWR, so your letter should demand this specific information.
I understand your desire to improve your loans, given the high rates compared to today's market and the fact that your payment will increase significantly once the interest only period ends. Unfortunately, unless there is a HARP 3, there won't be a good option for you. Even with the HARP 3 proposals I have seen, your second would likely still need to subordinate.
I agree that choosing to go late in the hope of getting a loan modification is very risky. Late payments, for one, would very likely disqualify you from a HARP 3. It will harm your credit rating, too.
You need to craft an argument showing it makes more sense financially for the investor in your mortgage to take a haircut than for you to strategically default.
Step back and look at your situation dispassionately. Does it make sense for you to short sell your home, rent for a year or two, and then buy again when you're on your feet again?