In the spring of 2009, the Obama administration unveiled the Home Affordable Refinance Program, or HARP. HARP’s objective was to help make mortgage payments more affordable for homeowners who have insufficient, or negative equity, by allowing them to refinance their loans, providing that certain requirements were met. The administration had hoped he program would aid over 5 million homeowners – to date, it’s helped approximately 894,000 borrowers. Critics have charged that the program was cobbled together, included barriers to participation, and was implemented haphazardly. Although the numbers may support those assertions, nearly 1 million homeowners were helped. Not a great record, but better than allowing them to lose their homes. So what does the administration hope to achieve by repackaging this program, and how does the new version of HARP stack up?
No one is arguing the fact that we are in the midst of an unprecedented housing crisis. Nearly 6 million homeowners have lost their homes to foreclosure since 2007, and 2012 is on pace to be a banner year. Currently, about 11 million American own homes that are underwater, 4.7 million of which exceed HARP’s original 125% loan-to-value limit. To broaden the reach of HARP, the Administration plans to implement critical changes to entice both homeowners and banks to participate. One of the more dramatic changes is the elimination of the 125% L-T-V limit. Under the new program, homeowners who owe more on their homes than they are worth will be able to refinance no matter how much they are underwater.
The administration is trying to spur involvement by reducing or eliminating many of the fees typically associated with refinancing, such as appraisals and underwriting requirements. Furthermore, fees will be reduced further for those homeowners who refinance into shorter term loans. On the lender side of things, the Federal Housing Finance Agency is encouraging participation by eliminating liability. Under HARP Classic, lenders were required to repurchase loans if the borrower defaulted – no surprise that banks were not initially inclined to participate. Lifting this requirement could give a big push to New HARP, providing people qualify.
To be eligible for New HARP, the homeowner(s) must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, sold to those agencies on or before May 31, 2009. The property’s current loan-to-value ratio must be greater than 80 percent, which is no stretch in the current market. Homeowners may run into some issues with payment stipulations, however. Under New HARP, the homeowner must have been current on their payments for the past six months, with no more than one missed payment in the past 12 months. This could be tricky for folks who have endured additional financial setbacks due to economic conditions. Finally, the homeowner’s credit must be strong enough to qualify for a new loan, again an issue that may prove challenging in our current climate.
Will New HARP make an impact? The short answer is maybe. Detractors of the revitalized program call this more of an economic stimulus plan as opposed to a housing remedy. The administration anticipates that the average HARP participant will save $2,500 each year. That’s nothing to shake a stick at, but what will consumers do with those savings? Economists, and some within the government, believe these savings will be spent in the economy and help spur recovery. Because of the particularly vicious financial conditions, more consumers are saving, bulking up their emergency funds. Many of us have experienced the debilitating effects of our current financial high-wire act, absent the all-important safety net of savings, and are not too eager to repeat that mistake. A lot of that $2,500 may go into savings.
Furthermore, the plan does nothing to help the millions of consumers who are already in foreclosure, or who have fallen further behind than one missed payment in the last 12 months. Sure, New HARP will help prevent some homes from falling behind, but what happens to those who are facing relocation and the stresses associated with the foreclosure process? This program doesn’t address that problem. Finally, the biggest limitation of the revised HARP is that it is a voluntary program for lenders. Although the administration has stripped the original repurchase clauses, banks are by no means required to refinance under HARP.
In the end, of course, only time will tell. The new HARP rules haven’t been finalized, but the administration hopes to release them by November 15th. We’ll bring you more as information becomes available. Until next time, I’m Thomas Fox for Cambridge Credit Counseling.