By Robert Freedman, Senior Editor, REALTOR® Magazine
The administration yesterday rolled out an initiative to boost refinancing so struggling underwater borrowers can take advantage of today’s historically low interest rates. The effort is being called HARP 2, with “HARP” standing for Home Affordable Refinance Program and “2” standing for the fact that the first iteration of the program, rolled out two years ago, hasn’t attracted the volume of refis that’s needed to match the scale of the problem.
Under the new version of the program, lenders process refi applications for borrowers no matter how deeply they’re underwater. Previously, the limit was set at borrowers whose loan-to-value ratio was no more than 125 percent. Even so, the program isn’t intended for all underwater borrowers; just those who have been conscientious in making their payments despite having to pay on a mortgage that’s larger than the value of their home. Those who have stopped making payments or who have a checkered history of making payments can’t apply.
For eligible borrowers, the refi option is available to them without the lender having to order a new appraisal, which saves them several hundred dollars, and they get a waiver on fees that Fannie Mae and Freddie Mac would otherwise charge them because they’re high risk (that is, they’re underwater). Lenders, in turn, get relief from having to make representations and warranties that would otherwise hold them liable for losses on defective loans.
There are other important pieces to the initiative, including a requirement in some cases for borrowers to refi into a shorter-term loan to get all of the benefits.
It’s too soon to know how much the initiative will help borrowers. Some of the provisions require federal guidance, so lenders can’t start processing applications right away. And Fannie Mae and Freddie Mac still have to do some updating of their automated underwriting programs, and lenders, in turn, have to update their underwriting procedures. In short, you can expect little to happen before the first part of next year.
The Federal Housing Finance Agency, which oversees Fannie and Freddie as their conservator, is the main agency behind the initiative. You can read all the program details at its Web site.
For you, as a real estate agent, the benefit of a successful HARP 2 will be mainly on a macro level. The improved financial condition of participating households will lessen the chance of them defaulting on their payments and forcing the lender to foreclose on their mortgage. That will help reduce the number of foreclosures coming onto the market, which will help curb further price declines. It will also help give these borrowers some financial breathing room, so they might start spending again, which is something the economy needs to help it sustain its growth. All of these are big ifs, but the initiative at least shows the federal government understands housing is at the core of the country’s economic doldrums and it’s starting to look for ways to give it a boost.
As it looks for more ideas, it can start with NAR’s five-point housing plan, which calls for the federal government to stop doing harm to the market by talking about changes to the mortgage interest deduction, lowering FHA and conforming loan limits, and proposing a 20-percent down requirement. Those and other pieces of the plan are outlined in plain language online.
For all the focus on HARP and HARP 2, it’s worth noting that the lion’s share of refis since the downturn have been done outside the HARP structure and that will continue to be the case. (See below. HARP refis are shown in grey; regular refis are shown in blue.)
For borrowers who aren’t underwater or who don’t have a Fannie Mae or Freddie Mac loan, their ability to refinance is dependent solely on lender policies. NAR continues to urge lenders to dial back their underwriting requirements to the sound policies that were in place prior to the housing boom. To the extent lenders replace overly tight standards with prior sound policies, borrowers will be able to take advantage of today’s low interest rates, and that will certainly help the economy.