The economy is trying to get better although not exactly at the pace many would like to see. Since the housing debacle of the past decade, a variety of stimulus programs have been introduced from TARP to HARP and all things in between. In fact, it’s the HARP program that is getting attention once again and could provide a much needed boost heading into 2014. Why HARP?
Tell me Again – What is HARP?
The original Home Affordable Refinance Program, or HARP, launched in late 2009. This program was specifically designed to allow homeowners who were “upside down” on their mortgages to refinance into the new, lower rates. Historically, conventional refinance loans need at least a 10 percent equity position before a refinance application could be approved.
Yet as home values across the country fell in a big way, many homeowners who could free up monthly cash with a lower house payment were left on the sidelines. Their mortgage was greater than the value of the home. The HARP directive helped those get rid of higher payments into lower ones. That is unless the mortgage balance represented no more than 125 percent of the current market value. While that helped, some, it didn’t help most.
Related: Start Getting Ready for HARP 3.0
There were additional kinks in the program that made lenders less than enthusiastic about the HARP program including a bit of paranoia should the lender make an honest mistake. In that instance, the lender would be forced to buy back the loan.
These and other problems vanished with the introduction of HARP 2.0. Prior to the newer version, less than a million homes were able to take advantage of the program. 2.0 however addressed lender concerns while at the same time waiving the value requirement for the property completely. No more 125 percent rules and an appraisal isn’t required at all. Lenders followed suit and began actively soliciting HARP 2.0 applicants who were then able to refinance to a lower rate, helping to put more cash in the economy.
One aspect that HARP 2.0 did not change however was the conventional to conventional requirement. An existing HARP 2.0 candidate had to have the borrower’s loan owned by Fannie Mae or Freddie Mac. Other loan types underwritten to other standards were left out in the cold, unable to refinance due to their own valuation problems.
Where’s the Mythical 3.0?
The prospect of HARP 3.0 has been on the horizon for nearly a year now. HARP 3.0 could possibly, eliminate the Fannie/Freddie issue and adds other benefits. HARP 3.0 could apply to any existing mortgage, regardless of who owns the loan.
Yet while HARP 3.0 can be a good thing for the economy, the proposed legislation has been held up with little prospect of moving forward. Can you think of anything Congress has been able to agree upon lately? Not much if you think about it. In fact, the only thing Congress has been able to do is not do anything.
If you consider the government shutdown, sequestration, budget battles, veto threats, the so-called “nuclear option”…the list keeps growing, so why would the consumer think HARP 3.0 will pass this or any Congress? That’s where the Federal Housing Finance Agency comes in, because it may be able to implement HARP changes without approval from Congress.
HARP 3.0 and FHFA
Opening up the purse strings for borrowers with alternative or subprime mortgages by cutting their mortgage payment literally in half could provide a much needed economic boost.
One positive development appears to be the approval of Mel Watt as head of the Federal Housing Finance Agency, or FHFA. His acceptance seems to be widespread and there doesn’t appear to be anything that could hold up the appointment. Why is Mr. Watt important?
Mel Watt has been a champion of homeowner affordability policy. When a congressman, Watt consistently supported homeowner assistance programs to allow more people to stave off foreclosure and provide borrower options that would allow more homeowners to keep their homes and there’s every reason to believe he’ll continue that effort as FHFA chief.
There has been talk and it will be mentioned in his appointment hearings how FHFA can make such a sweeping change to the existing program without Congressional approval. Yet FHFA has already set such a precedent by making changes to the current HARP 2.0 program which have been approved and implemented. That means there is no law that needs to be passed for a HARP 3.0 introduction and all that is needed are adjustments to the current HARP 2.0 program already in place.
Should Watt be approved as expected, it’s very likely implementing HARP 3.0 will be one of his first priorities. If it happens in that manner, millions more will be able to refinance their current mortgage to lower, more stable fixed rate loans.