HARP 3 - Expanding HARP to More Borrowers

HARP 3: Will HARP be Expanded?

Millions of American homeowners are unable to take advantage of the historically low mortgage interest rates. Their efforts to save money have been thwarted, despite the different government programs that exist, such as the Home Affordable Refinance Program (HARP) and the HARP 2 program.

Congress has proposed several "HARP 3" programs that could greatly expand the refinancing opportunities available. Although it seems unlikely that Congress will pass new legislation before the November 2012 elections, the problem is not going to go away on its own. Congress still needs to deal with the housing crisis and the many homeowners struggling to pay their mortgages.

Some of the HARP 3 plans currently being discussed are:

1. The Boxer-Menendez Refinance plan: Aims to increase the number of eligible and qualifying HARP 2 borrowers.
2. President Obama’s #Myrefi Mass Refinancing plan: Aims to increase the number of underwater borrowers eligible for refinance from the 4 million HARP candidates to 12 million potential borrowers.
3. Sen. Merkley’s Rebuilding Homeownership 4% Mortgage: A specific proposal to implement the Obama Refinance plan and allow all underwater borrowers an opportunity to refinance.

Note: The proposed plans require that borrowers remain current on their loans, so make sure that you make your mortgage payments on time. If you are having trouble making payments, then speak to your servicer about foreclosure avoidance programs, such as a loan modification or short sale.

HARP Background

Historically low mortgage interest rates have sparked a boom in the refinance market. In fact, over 80% of the loans originated in the first 9 months of 2012 were refinance loans. However, many borrowers are not able to refinance and either are not eligible for any refinance program, or don’t meet the even tougher qualification standards many lenders apply.

One of the major programs that has helped underwater borrowers refinance is the HARP mortgage program. Freddie Mac and Fannie Mae announced the updated HARP 2.0 mortgage refinance program in Nov. 2011, and started accepting automated underwritten loans in March 2012, the date when HARP 2.0 kicked into high gear. The expectation is that 1 million HARP loans will be originated in 2012, more than the previous 3 years combined.

There are an estimated 11 million borrowers with mortgages worth more than their homes. The current HARP program, even if fully implemented, only covers a part of these borrowers.

Why Address the Problem?

There are various reasons to address the problems individual homeowners and the housing market is experiencing, including:

• Improve the housing market, especially in hard-hit areas.

Even though mortgage interest rates are low, the economy has not recovered. Many areas are afflicted with high unemployment and depressed incomes. Borrowers who cannot lower their mortgage payments are at risk of foreclosure risk. Foreclosures and short sales further depress the housing market.

• Put more money back into borrowers’ pockets and help stimulate the economy.

Based on some broad assumptions, the Obama plan claims that the average borrower can save $3000 a year. A borrower with a loan balance of $200,000, 5.5% interest rate and 27 years left who refinances into a 30 year loan at 3.5% will pay begin to pay $288 less per month, about $3456 per year.

Who Can Benefit From an Expanded HARP Program?

Currently there are programs for a select group of underwater borrowers, as follows:

• HARP 2.0: Only for borrowers with Freddie Mac and Fannie Mae, loans originated (and delivered) before June 1, 2009.
• FHA Streamline: Only for borrowers with FHA loans.
• VA Streamline: Only for borrowers with VA loans.

If Congress decides to expand the HARP program, here are some of the people that will benefit:

HARP 3: Expand to Borrowers with Non-Conventional Loans

There are many borrowers who do not qualify because their loans were not sold to or guaranteed by a government backed agency. Many lenders qualified these borrowers on easier terms, avoiding the tougher underwriting standards of Fannie Mae and Freddie Mac.

These borrowers include:

• Homeowners who qualified for one of the following type of At-A loans: No Documentation loans, Low Documentation loans, Stated-Income loans.
• Sub-prime borrowers who did not qualify for a conventional loan due to their credit scores or debt-to-income ratios. Sub-prime borrowers often received adjustable rate mortgage loans, on the belief that housing prices would increase, so there was really no risk, or that they could rebuild their credit during the two years that their loans were at a fixed rate and then refinance to a prime loan. When home values plummeted, they were unable to refinance and were subject to a hike in interest rates.

HARP 3: Expand to HARP 2 Borrowers

Although Fannie Mae and Freddie Mac released in Sept/Oct 2012 less stringent buy-back rules, including those for HARP 2 loans, this is not enough. Congress needs to address the millions of borrowers who’ve been left out of the HARP 2 program. This includes:

• Borrowers who meet the basic eligibility requirements set by Fannie and Freddie for the HARP 2 program, but due to tougher lender requirements can’t get approved for a loan. Tougher lender requirements are hurting borrowers with low credit scores, high DTIs, condominiums, high LTVs, and difficulties verifying income. Congress can pass the Boxer-Menendez Bill and allow many HARP 2 borrowers, who are making their payments on time, but don’t qualify because of strict lender guidelines.
• Borrowers who already refinanced with a HARP loan, but the interest rates have dropped significantly, from 5.5% to 3.25% for a 30-year loan.

Congress and Mass Refinancing

Although it seems unlikely that Congress will pass an expanded HARP 3 program anytime soon, the housing and mortgage market need repair and assistance. If you would benefit from any of proposed changes, press your elected representatives to pass expanded mass refinance program, and make sure you make your mortgage payments on time.

Prepare your finances to improve your chances of qualifying for a refinance loan. Improve and monitor your credit score, pay attention to your debt-to-income ratio, and be sure you have enough cash reserves available to meet lender requirements. Even if the HARP program is not expanded, you will put yourself in a stronger position to qualify for a refinance loan.