Hello, and welcome to Your Money 2.0. I’m
Thomas Fox, Community Outreach Director at Cambridge Credit Counseling. 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.