Today there’s a potential bill sitting in committee called the Responsible Homeowner Refinancing Act of 2013, sometimes referred to by those in the mortgage industry as HARP 3.0.
Yet at its current pace and the state of legislative affairs in Washington, it might soon be dubbed the Responsible Homeowner Refinancing Act of 2014. If “HARP 3.0” is in fact enacted and put into place next year, what can we expect the final bill to look like?
HARP was originally introduced in 2009 and later updated with its current version: HARP 2.0. These programs allowed for homeowners who were “upside down” with their mortgage to refinance into a lower rate and payment.
Prior to HARP, conventional borrowers would either have to pay down their loan amount with their own cash or sit on the sidelines until their values increased, which would take years.
The 2009 HARP provided some results, but it was fairly limited. Lenders were sometimes reluctant to participate in the program. If a mistake were made while underwriting the file, and this was a brand new loan program after all, the bank could be forced to buy back the loan.
And there was a 125 percent loan-to-value requirement, which blocked many from refinancing.
HARP 2.0 took away the major obstacles to the program and in most eyes it was a success.
Major HARP Limitation
But there’s still one huge limitation: a HARP refinance still requires the loan to be owned by Fannie Mae or Freddie Mac. That’s why sweeping changes to HARP are wished for by so many homeowners. HARP 3.0, as this theoretical loan program is known, is not a finished product but here are some changes that might occur:
- The requirement for the loan being owned by Fannie and Freddie may be removed. This means non-agency loans such as Alt-A, option ARMs, or even subprime loans might be eligible for the program.
- HARP 3.0 might also find that employment and income verification be waived. This provision was placed in the original 3.0 package but contradicts a recent CFPB ruling that will require lenders to determine affordability on all mortgage loans. So this provision is not likely.
- The funding deadline of May 31, 2009 be removed and permit all mortgage loans, regardless of the closing date be allowed to participate in the program.
- A future HARP 3.0 bill could allow re-HARPing, i.e., using HARP again on the same property even if this loan type has been used once before.
That’s a lot to swallow but if passed will help countless others take advantage of lower interest rates that otherwise could not. Will it pass? Will HARP 3.0 become a reality? No one knows, but it has to get out of committee before it has any chance at all. At this stage, it’s nothing more than wait-and-see.