I've been thinking about this program because we have been getting a lot of calls from upside down homeowners wanting to find out if they could refinance under the HARP program. Basically, the program allows homeowners to refinance their existing mortgage The Program has the following requirements in Phase II and estimates are that somewhere around 1.6 million underwater homeowners may take advantage of this program as well as a large number of non-distressed homeowners.
- The loan must been owned by or guaranteed by Freddie Mac or Fannie Mae.
- Loans sold to Freddie Mac or Fannie Mae must have occurred on or before May 31st, 2009.
- Borrower must be current on the mortgage for the past 6 months and no more than one late payment in the past year.
- The refinance of the loan must improve or enhance the stability of the borrowers ability to repay the loan.
- The requirements for loan to value ratios under 125% has been waived and in some cases no appraisal is required. This means you are eligible to refinance regardless of the value of your existing home.
- The program expires at the end of 2013.
Where this program may really make some progress is with homeowners who otherwise cannot refinance because they have other credit issues such as a short sale, foreclosure or bankruptcy but may still be able to take advantage of this program. This program is available to these homeowners even if they are not upside down on their mortgage. There is a hit for investors so rates close to current rates may not make sense for investors unless a very long hold time is anticipated. Another obstacle that may come into play is for homeowners who have second mortgages. In these instances, the second mortgage holder must be willing to subordinate their loan to the new first loan in order to complete the refinance.
If you would like a free consultation about whether to apply for a HARP refinance just email us at
al@algage.com or give us a call at 623-536-8200 so we can refer you to a participating lender or counsel you about whether a short sale may be a better option. With many servicers offering anywhere from $1000 to $20,000 incentive to do a short sale, in many cases this may still be the best option depending on your longetivity in the area and ration of your loan to your current value.
Back to my thoughts. I am still very concerned that three parts of this program are very disconcerting and I still do not have answers to the following questions.
- Is this simply a way for the banks to divert or delay foreclosures and/or short sales. I am sure that for many homeowners who are determined to stick it out this will only be seen as help and will probably make their financial stablility better. I also know that 2 or 3 years from now, homeowners who take advantage of this program or other modification programs that have been available in the past, are going to realize that the real estate market may never get back to the point where they can break even and they have made a horrible financial decision to continue to pay for a home that is considerably underwater.
- Dealing with the banks and servicers every day has made me a little suspicious. This may be overreaching on my part but WHO IN THE SECONDARY MARKET IS GOING TO WILLINGLY BUY THESE MORTGAGES THAT ARE UNDERWATER? The answer is no one. Many of the originators I work with are having trouble finding investors to purchase these mortgages on the secondary market in anticipation of the flood of refinance requests that are expected.
- Just updated, at least one major bank has the program up and running as of today. If a large number of buyers are found for these mortgages, then it scares me even more. This would be the equivalent of more credit default swaps which actually got us here in the first place. In essence, if the major players are able to move their non-performing mortgages around through this program, then it is just more of the shell game that led us to this point. SO IS THIS ANOTHER BAILOUT IN DISGUISE?
I reiterate, this crisis was not caused by bad appraisers, bad borrowers, borrowers that shouldn't have been able to buy homes or fraudulent loans. The major players in the secondary market did not anticipate even a 15% drop in home prices and failed to reserve any of their additional profit to protect against the inherent additional risk in these loans. Their knee jerk reaction to punish homeowners and worry about fraud more than profit and loss caused the market to plunge much further than it should have.
To finalize my discussion, of course this program will be a godsend for some borrowers. I do not mean to discourage participation in this program in any way. However, for some, this program will just be prolonging the inevitable to a time when short sales are not as common or routine as they are now.
