The Ins and Outs of HARP 2.0 

Recently the President announced a new set of rules that will help out homeowners who are underwater. The refi program, dubbed HARP 2.0, is not likely to give the help expected.

When the original HARP (Home Affordability Refinance Program) was initiated in 2006 it was expected to refinance 5 million homeowners, so far only 800,000 have been helped. That’s about 1% of total refinances for people who were more than 5% upside down.

This week on Saving Thousands! with Robert Palmer I broke down HARP 2.0 so you will know exactly what to expect and whether or not you        qualify.

First, the FHFA (Federal Housing Finance Agency) claims this program will help 2 million people but if we use the 20% success rate from the original program, I estimate only about 400,000 people will receive the benefits of this program.

The official press release from the FHFA states that all underwater homeowners will be able to take part in this program. This statement is completely misleading, because HARP 2.0 only applies to people with existing Fannie Mae or Freddie Mac loans. Of the millions of upside down mortgage owners only 20% have Fannie Mae or Freddie Mac. The government can make Fannie and Freddie refinance loans, but they can’t make other lenders participate in this program.

In the new HARP the 125% cap restriction on loan to value was removed. That meant to qualify for the program the most a homeowner could be upside down was 25%, now that’s not the case.

As a lender they want us to find another way to fund these loans - specifically with our own capital. That’s not how our industry works. I predict interest rates will have to go up to encourage the banks to use their own capital or to incentivize investors to buy these loans instead of the normal loans that have equity. The higher rates eliminate all the benefits of the refinance.

Appraisals are another big selling point in the official press release, “New appraisals will be waived on these refis as well…according to the FHFA terms sheet.” That second part is pretty important! The terms set are very particular. The sad news is by the time you do the math, few will qualify.

HARP 2.0 also claims, “For borrowers who refi into shorter-term mortgages of 20 years or less, all risk-based origination fees will be waived.” What they are talking about are the fees the FHFA controls – that’s only about 15 -20 % of the total amount charged – so they aren’t talking about the banks fees. Consumers can do loans with no fees at RP Funding, because that’s how I built my business, but the FHFA does not control other lenders’ fee.

Either way someone is getting hurt with this new program. A homeowner is getting stuck with a high payment or an investor is getting stiffed on a stream of income. When I say investor I’m not saying some guy on Wall Street - I’m talking about a retiree or a teacher’s pension fund, someone who put money into mortgage bonds instead of the stock market, when we allow these refis we are hurting their incomes.

I’m not thrilled with the false hope of this program. It’s not going to affect people who bought houses 3-4 years ago or those who are going to buy a house – it’s going to affect the minority of people who bought years ago and who said I’m not going to walk about from my home, I’m going to stand by it, no matter how hard it gets. These people have been made to think they are going to get the relief they’ve been waiting for and deserve, but instead we are tearing down the last shred of hope. And these are the people who have been following the rules!

I was fortunate enough to be on a call with other business executives after the new HARP press release was sent to us to discuss our concerns. I hope they listened to our feedback and rewrite some of these stipulations. We will see on Nov. 15 when the rules come out.

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