In advance of a speech in Nevada later today in which President Obama is expected to expand on the initiative, the Federal Housing Finance Agency (FHFA) has announced major changes to the Home Affordable Refinance Program (HARP). FHFA unveiled what is essentially a widening of HARP to reach more borrowers in another effort to reverse the continuing flood of delinquent mortgages heading down the pipeline to foreclosure.
HARP is unique among programs designed to assist distressed borrowers in that it is intended to help those who are current on their mortgages but underwater, that is who owe more on their mortgages than the current market value of their homes. Several studies have identified these borrowers as being likely to strategically default on or walk away from their mortgages. Although Fannie Mae and Freddie Mac, the two government sponsored enterprises (GSEs) which are under FHFA conservatorship, have assisted about 9 million homeowners to refinance into lower-cost mortgages over the last few years, only about 10 percent of those were aided through HARP. HARP, like the other major government foreclosure prevention initiative HAMP, the Home Affordable Modification Program, has been impeded by a lack of enthusiasm among lenders and servicers integral to the programs’ success. In the case of HARP, the lenders objected to the possibility they might have to buy back delinquent loans if they weren’t scrupulously underwritten. They thus tended to cherry pick the best loans which in turn limited borrowers from refinancing with other than their current lenders.
The current HARP limits the loan-to-value (LTV) ratio for a new loan to 125 percent (the program originally had a limit of 105 percent). This effectively eliminates the most underwater homeowners and even leaves whole states, such as Nevada where large percentages of homeowners have negative equity above that amount, out of the program.
While regulations and guidance for the plan won’t be finalized for several weeks, relevant changes to HARP that were announced today include:
- Removing the current 125 percent loan-to-value ceiling on refinanced mortgages;
- Waiving risk-based fees on borrowers who take shorter term mortgages and reducing those fees for others;
- Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the GSEs;
- Eliminating certain representations and warranties required of lenders to obtain the GSE guarantee. This will protect lenders from many of the buy-back requirements they face under current guidelines.
- Extending availability of the program through the end of 2013.
FHFA said the changes to HARP were made with input from lenders, mortgage insurers, and other industry participants. According to The Wall Street Journal, among the concessions made by the industry are agreements from private mortgage insurers to facilitate the transfer of existing mortgage insurance coverage and from most of the major lenders to ease the process of subordinating existing second mortgages to the new loans.
The changes in the program may double the number of borrowers using HARP according to some estimates, but still will serve only those borrowers who are current in their loans and who have loans owned or guaranteed by one of the GSE’s that were delivered to Fannie or Freddie prior to July 2009. Thus it will impact only a small percentage of distressed borrowers in the country.
“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said FHFA Acting Director Edward J. DeMarco. “Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”
Charles E. “Ed” Haldeman, Jr., Chief Executive Officer of Freddie Mac released the following statement on the program. “This new phase of the Home Affordable Refinance Program (HARP) will help reach more borrowers with negative equity so they can refinance into new Freddie Mac mortgages at today’s historically low-rates. These changes mark another step on the road to recovery for the nation’s housing market and underscore Freddie Mac’s vital role in making affordable mortgage financing available to America’s homeowners and future homebuyers.”