Ever since the President mentioned in his State of the Union address this past January, that â€œeveryâ€ responsible homeowner should be able to refinanceâ€, the buzz began.
Well, sort of. Nothing has passed. Itâ€™s all conjecture at this point. Here are the facts;
Home Affordable Refinance Program (HARP) was launched in 2009 as a means to stimulate the economy and answer the cry of millions of homeowners who were witnessing modifications taking place for underwater borrowers who were late, but cried foul when they discovered there was absolutely no help for borrowers who were paying on time. Mortgage rates were falling but few homeowners were able to refinance as they had lost too much equity in their homes.
Not a lot, but approximately one million homeowners were able to take advantage of the program that allowed underwater borrowers, paying on time, who had a Fannie Mae or Freddie Mac loan and were no more than 125% negative equity, to refinance.
In November 2011, HARP 2.0 was born
This updated version removed ALL LOAN TO VALUE requirements. In theory, so long as the lenders cooperated, it matter not that you owed 400K on a 100K valued home. So long as you were paying on time and your loan was backed by Fannie Mae or Freddie Mac, you were supposed to be able to refinance. You donâ€™t need an appraisal, proof of income, minimum credit score, proof of assets, etc. Oh, letâ€™s not forget a critical factor; the loan had to be â€œoriginatedâ€ prior to June 1, 2009.
This program was barely launched and talk of HARP 3 began!
HARP 2 is not taking off like gang busters yet as many of the Conduits (Banks) that are required in order to facilitate the process are expressing concern about what happens if they cooperate, allow the refinance to go â€œon their booksâ€ and Fannie Mae or Freddie Mac claim a year, or two, or longer down the road, that the Conduit failed to notice something about the borrowers income and therefore they must now â€œbuy the loan backâ€. When this happens this is very costly to the banks and they want to avoid this. One way to avoid this is to simply refuse to participate in the program in the first place, or limit most of their cooperation to their own loans and not take on any other competing banks negative equity loans. For example, Wells Fargo may assist a borrower who is currently making payments to Wells Fargo, but they will not help a borrower who is making their payments to BofA.
The best thing a borrower can do is shop around and not rely solely on what their current lender tells them. If you have been turned down by your own bank know that there are other banks that only exist to do mortgages (Meaning they do not take deposits from the public) as well as there are loan brokers who have received a bad rap, but a lot of the remaining ones are quite good at what they do, who may also help.
HARP 3.0: Help for Non Fannie Mae or Freddie Mac Loans
Many borrowers who want to refinance do not have a Fannie Mae or Freddie Mac loan and that is what HARP 3 is supposed to address.
During 2002 to 2007 a huge segment of the market obtained loans that did not get sold to Fannie or Freddie. Sub-Prime loans, for well qualified borrowers, WERE ACTUALLY CHEAPER than a Fannie of Freddie backed loan. Sounds crazy, but itâ€™s true. Itâ€™s just how the metrics worked out. In addition, millions bought homes using what is referred to as Alt-A loans. These loans often had reduced paperwork requirements and in some cases, were known as the â€œStated Incomeâ€ loans, or liar loans.
â€œLiar Loansâ€ received their name due to the fact that a W-2 wage earner with an easy to verify pay check stub did not have to provide this information and could simply â€œstateâ€ their income on a loan application. Many lied and stated that they made more than they did in order to buy their â€œdream homeâ€. Many of these people sadly are also suffering from amnesia when asked about why they lied on their loan application and are claiming they had; â€œno idea their loan officer did this to themâ€! In fairness, in my opinion, both borrowers and loan officers are guilty in many cases.
A sub-prime or Alt-A loan was a good product at the time and a lot of good borrowers took those loans, are paying on time and cannot refinance due to a loss of equity. HARP 3, if it passes, or comes to fruition is for them.
Also, again, during approximately 2002 to 2007, before conforming loan limits were raised in â€œhigh-cost areasâ€, homeowners who bought or refinanced were relegated to â€œnon-conformingâ€ loans, that is, their loans were not purchased by Fannie or Freddie. Today, they would have been.
HARP 3 would help some jumbo homeowners to refinance
In conclusion, we donâ€™t know what the future holds in regards to HARP 3, but we do know that millions of borrowers are have been paying on time and could certainly use the relief of a lower mortgage are hoping and praying it comes to pass. Many of them are the â€œresponsibleâ€ homeowners the President referenced in his January address.