“The Good and Bad with HARP”
I consider myself a pretty savvy mortgage guy. I know more about different mortgage product than most in this business. Having said that, it is not easy getting these HARP loans done. Every day is a new learning process.
First, not every lender is participating, the ones that are participating all have different rules. There is no such thing as one set of rules. It is tough enough to get one of these loans done, that doesn’t have existing mortgage insurance.
When a loan that is owned by Fannie Mae or Freddie Mac and has mortgage insurance, then the fun begins. There are many different mortgage insurance companies and lenders don’t all use the same companies. Again, different lenders, that use different mortgage insurance companies, have different loan to value guidelines.
I suppose we should consider ourselves pretty lucky, that we are getting 8 out of 10 HARP loans approved, but my goal is always 100%.
Lawmakers seated on the Senate Banking Committee convened a hearing Wednesday to determine just how radically draft legislation should lift barriers to refinance opportunities for homeowners and lenders.
The message from those testifying: More refinance modifications would help, but beware of the impact for investors and lenders.
Debra Still, chairman-elect of the Mortgage Bankers Association, said that the trade group “strongly supports” any expansions that could widen the reach of the Home Affordable Refinance Program (HARP) as a result of legislation before the committee.
She underscored support for the removal of loan-to-value ratio restrictions and “arbitrary” requirements regarding who services loans.
“Such features only serve to increase borrower and lender confusion, and reduce the number of qualified borrowers who could benefit from the program,” she told lawmakers in introductory remarks.
Chris Mayer, a professor of real estate and finance at Columbia Business School and an early proponent of refinance expansions that helped facilitate HARP 2.0, said that the refinance program would help homeowners but nodded at barriers, including rules that limit servicer buy-in.
“These adjustments were supposed to be focused on aiding underwater borrowers and increasing competition between servicers, but the results so far have failed to live up to this promise,” he said.
The Obama administration moved on expansions to HARP last fall by working with the Federal Housing Finance Agency (FHFA) to sign off on lower loan-to-value ratio requirements, remove obstacles for lenders and servicers, and allow homeowners to trade up on their mortgages at today’s record-low rates.
Critics continue to find fault with the program by citing apparent problems with other loan modification programs, including the Home Affordable Mortgage Program (HAMP).
Anthony Sanders, professor of finance with George Mason University, nodded at 14 federal loan modification programs currently in place, including HAMP and others under the Federal Housing Administration, Treasury, and the Department of Veterans Affairs.
“At some point, the collective impact of these programs could drive our banks into bankruptcy,” he told lawmakers. “This possibility must be included in the analysis before any further steps are taken.”
The cost to investors in mortgage debt and securities remains a critical issue on Capitol Hill. The FHFA generated criticism from the left earlier this year by resisting calls for principal reductions.
Mayer faulted the FHFA for resisting principal write downs, estimating that as many as 2 million to 3 million homeowners could refinance and prevent foreclosure if given the opportunity.
“Obviously the losers here are investors, but the investors have had an enormous windfall associated with this program,” he said, referencing the explicit federal guarantees for mortgage debt owned by the GSEs.
He also cited a “lack of competition” as the most “serious problem” under HARP 2.0. He said that current HARP policies force lenders to assume liability for loans originated by others, discouraging lenders from refinancing loans accordingly.
The debate over refinance expansions takes place amid election-year politics. Speaking before Congress in January, President Barack Obama pledged to roll out new refi modifications, together with new consumer financial investigations and a Homeowner’s Bill of Rights.
It was not immediately clear when the Senate Banking Committee would move on legislation to widen HARP’s reach.
Joe Petrowsky, NMLS #6869
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