In 2012, the HARP refinance program for underwater homeowners was revamped. New guidelines have been set forth by the government and they are soon expected to be adopted by lenders. But, will the HARP program 2.0, as it has been nicknamed, live up to the expectations?
First, let’s take a look at what this program was designed to do. HARP was designed as a way for underwater homeowners to refinance their mortgages to current interest rates. This is assuming that their current interest rate on their mortgage is higher than todays rates, which is usually the case.
Homeowners who are current on their mortgage payments and have a loan that is backed by Freddie and Fannie will be able to refinance the loans. Homeowners who have late payments will not qualify and must look to other options such as loan modification or a short sale to avoid foreclosure.
The original HARP program placed a cap on your loan to value ratio, which eliminated many homeowners as participants in the program. Too many people had homes that were worth far less than they owed. With the new program, this cap has been lifted so that anyone who is upside down on their mortgage and meets the other requirements should be able to qualify and refinance. Exciting, right?
Sure, if you believe everything that you read.
Here is the main problem I see with the HARP underwater refinance program: The government does not control what lenders do. They only set the “guidelines” for the program and expect lenders to adopt them. The lenders have to agree to these guidelines and use them.
Why they won’t agree to these guidelines
Loans are backed by investors. For lenders to agree to these guidelines, investors must agree to these guidelines as well. Wall Street must agree to these guidelines! Do you think an investor will let someone who owes $300,000 on their home that is worth $125,000 refinance to a lower rate? I for one, do not.
What I think will happen with HARP
When the guidelines are officially adopted by lenders there will definitely be a “feeling out” period. Sure, HARP refinances will happen, but the majority of those refinances are going to be loans with an LTV (loan-to-value) of 125% or less. This is what investors are looking for. I think some lenders may be able to push up the cap to 135% or maybe even 145%, but I just don’t see it getting any higher than that.
HARP can say that they have new guidelines and no LTV cap for underwater homeowners looking to refinance, but it doesn’t mean it’s going to happen.
I imagine we will see similar problems with HARP that we saw with the HAMP loan modification program. Sounds great, but not many homeowners will qualify and get the help that they need.
About the author: Jeff G. is a prolific financial writer who has composed numerous articles relating to loan modification and the HARP refinance program.