HARP 2.0: What it is; What it isn’t
October 26th, 2011 in CDPE by Alex Charfen
When the Obama Administration announced a series of changes to the Home Affordable Refinance Program (HARP) early this week, our phones started ringing with inquiries from the media for our input concerning the impact. And we had even more questions about HARP during our CDPE Advanced Broadcast yesterday afternoon.
The new HARP is by no means a game changer.
Here’s essentially what we’ve had to say about the revamped government mortgage refinancing program:
HARP 2.0, as the media has started to refer to it, has some merit, but it’s scope is very limited and it will have little or no impact on foreclosures or the estimated 6.4 million homeowners nationwide who are behind on their mortgage payments. The new HARP just expands the net of those who were eligible for help under the original version.
HARP was created in April of 2009 to help borrowers whose loans were backed by Fannie Mae or Freddie Mac, but did not have enough equity or negative equity to refinance. Under the original version of HARP, borrowers who were current on their payments and owed up to 125 percent of the current value of their homes could refinance their mortgage.
The original HARP fell short of expectations. Over the past two and a half years, only 838,000 homeowners have benefited from the program. The new HARP has broadened the base with looser eligibility requirements.
Borrowers with FHA, Fannie Mae or Freddie Mac mortgages that were sold to Fannie or Freddie before May 31, 2009, will be able to refinance, no matter how far underwater they are. Banks will only have to verify that borrowers have made their last six payments, that they’ve haven’t missed more than one payment over the past year, and that they have a job or another source of regular income.
Other key changes:
- Appraisals are no longer required if there is a reliable automated valuation model (AVM)–a significant hurdle in the previous plan.
- Risk-based fees have been eliminated for borrowers who refinance to 15-year mortgages.
- Existing mortgage insurance coverage can be transferred much easier than under the original HARP.
While the new HARP won’t help homeowners who are behind on their payments and at risk for foreclosure, it is a welcome relief for homeowners who have been caught in the Catch-22 of not being able to refinance because they owe more on their mortgage than their home is worth, and at the same time, don’t qualify for a short sale or a loan mod because they are current on their payments and still have income and assets sufficient to cover their costs.
More money into the pockets of this segment will mean more dollars back into the economy, potentially heading off strategic defaults and keeping and stemming the tide of homes entering the foreclosure pipeline.