THINKING AHEAD: Borrowers, lenders wait for rules of engagement for HARP 2.0 refi product

Rarely, if ever, does a loan refinance loan program make its way into American popular culture. However, the approved revisions to the Home Affordable Refinance Program, known to all as “HARP 2.0” has created a buzz for lenders, loan officers and even homeowners.

Even though it’s great to envision a wonderful program that allows responsible homeowners (less than 2 mortgage lates in the past year in most cases) the ability to take advantage of the current record low rates, we need to be on collective caution until the program rolls out to the mainstream sometime in the next 30-90 days.

The original version of the program, known today as HARP 1.0, started back in Spring of 2009. Under HARP 1.0, the high level details issued by Agencies Fannie Mae and Freddie Mac went as follows:

HARP 1.0 Guideline Highlights (but not adopted by all lenders, as many have found out)
• LTV to 125
• Unlimited CLTV
• No MI if you don’t currently have it, or if you have MI, the MI stays the exact same

Sounds great, right? Well, by the time the banks got this program, and applied their risk models, and offered it out to borrowers, they collectively made the program much less attractive to the masses than the bullet points indicate. Many banks provided guideline “overlays”. Overlay is an ugly word for “we’re not going there”. Some banks, if they participated in the program at all, had overlays for 95% LTV and CLTV. A far cry (although helpful for a great deal of borrowers) from the core Agency product.

Although, many bank and lender sources have gradually gotten more liberal on this product. Some are currently much closer to the actual product offering than they were when if first started.

So now that HARP 2.0 is ahead of us, we have heard of some wonderful things, including:

HARP 2.0 Guideline Enhancements
• Lower risk adjusters (which translates to better rates for borrowers!)
• Unlimited LTV/CLTV
• No appraisal required
• Discounted or eliminated underwriting fees

So again, we lending professionals are waiting for the “reality check” of what, exactly will lenders do with their guideline“overlays”.

Odds are, the program will be picked up by many lenders. The guidelines will probably not be as liberal as issued by Fannie and Freddie, but there is a good reason to be excited because the program changes are expected to provide a more borrower-friendly product than what is currently available. THIS IS THE GOOD NEWS!


Stated simply: it’s not fair, but it’s the best thing going

Keep in mind, just because you have a mortgage doesn’t mean that help is on the way with this HARP program. There is a specific set of homeowners that fits the profile for the loans that are eligible. A loan must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. This means that if you have a loan that is not currently owned by Fannie Mae or Freddie Mac, then, sorry, you are not able to join in on the party. In 2008, Fannie Mae and Freddie Mac combined serviced nearly 50 million loans. That is a ton of loans. But in reality, it is about 40% of the entire housing market. So, odds are, 4-out-of-10 of homeowners will have a chance at this product, minus those who have already refinanced under HARP because the rule is that you can utilize the HARP product 1 time per property.

So where does the other 60% of loans come from? The other types of loans out there are VA, FHA and non-conforming. FHA and VA have historically had a very good streamline product. Their attitudes are typically that, if their borrower keeps making their payments, and we know nothing else about them other than the fact that we can offer them a better payment on their loan, then we all win.” A wonderful concept. That said, guidelines have tightened up on both FHA and VA streamline products in recent years.

That other huge piece of the servicing pie is Non-conforming or “other” loans. Unfortunately, this population of borrowers is left out in the cold for any sort of government sponsored or endorsed refi. For this unfortunate set of borrowers, the only choice is typically to walk away if you can’t make your payment, or take the less-than-satisfying approach for negotiating a rate reduction or principal reduction. These loans are commonly issued as bonds and one single non-conforming loan may have 20 or 30 different major investors. Too many cooks in the kitchen. In reality, it is hard for 2 investors to agree on the fate of a loan modification, let alone dozens. Going back to FHA, VA and Fannie and Freddie Mac, their cleaner, singular, mortgage ownership has enabled them to be more dynamic in their offering of these refi programs, and this has been a huge benefit for responsible on-time mortgage paying homeowners who just want a shot at these current great rates.

As timing has it, in President Obama’s Jan. 24 State of the Union Address, he mentioned that he’d like to see a program created to help these Non-Conforming borrowers. Analysis: Dream on. The chances of this happening are low, but you have to hand it to a politician who knows how many millions loved to hear those words.

Christian Hackett
Loan Consultant – Drake Home Loans/Placer Mortgage Group
916.425.0508 Direct
866.710.4543 eFax

1700 Eureka Rd, Suite 155A
Roseville, CA 95661

DRE 01421288
NMLS 572121
DRE 01403954
NMLS 659744

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