After a few fits and starts, the Home Affordable Refinance Program, or HARP, appears to have finally made its mark. Homeowners who couldn’t otherwise refinance to lower rates couldn’t because their mortgages were greater than the value of their homes. Originally crafted in 2009, HARP was later amended to HARP 2.0. Is a HARP 3.0 program going to be approved in 2014?
Historically, lending guidelines required equity in a transaction before a refinance could be approved. For most conventional loans, that means a mortgage loan balance no greater than 90 percent of the value of the home. As home values plummeted over the years, homeowners across the country found they couldn’t take advantage of lower interest rates because they were essentially “upside down” with their home loan – they owed more than their home was worth.
With the introduction of HARP and later the new and improved HARP 2.0, eligible borrowers were able to lower their monthly payments, putting more money back into the economy. There are a few basic requirements for HARP 2.0 but the primary guideline is who owns the loan.
To be eligible for a HARP 2.0 refinance, the loan must be owned by either Fannie Mae or Freddie Mac. Government-backed loans such as VA, USDA and FHA loans don’t qualify for the program. Before a lender evaluates a HARP 2.0 application, the lender contacts Fannie and Freddie to see if the loan is indeed owned by one of the two agencies. If not, then the borrower can’t refinance with the program.
There have been attempts in the past to expand HARP 2.0 to a newer version, HARP 3.0. The last attempt was a bill introduced early in 2013 but it went nowhere. However, there is a brand new opportunity with a bill introduced by Senators Robert Menendez of New Jersey and Barbara Boxer of California. This bill is in committee, but there may be signs that HARP could be expanded in some capacity in 2014.
Changes to the program include eliminating the qualifying date for the mortgage. HARP 2.0 only allows mortgages to be eligible if the loan was approved and funded before June 1, 2009. HARP 3.0 might open the program to any loan, regardless of the origination date.
Also, the requirement that a HARP program can only be used once could be waived as well as allowing the homeowner to have a late payment on their mortgage within the most recent six month period. It’s also possible that credit and income verifications will be curtailed.
One piece that’s missing from the Menendez-Boxer Bill is repealing the requirement of the loan being owned by Fannie Mae and Freddie Mac. These days, Congress isn’t exactly a well-oiled machine. That’s one possible reason that the huge Fannie-Freddie rule amendment was not attempted – yet.
Although that provision is not yet included in any proposed legislation, it could be in future bills introduced in 2014. It’s a logical next step if the current bill is passed.
But it would help tremendously if non-Fannie and non-Freddie Mac loans were allowed into HARP. By expanding the program to non-conventional loans, more homeowners can qualify for a new, lower rate. In fact, it might be one of the best improvements the HARP program can make. Why?
Many home loans issued before the housing bust were loans made to those with sub-par credit, or those with hard-to-prove income or who were simply lying about their income. These “stated income” loans and “no income, no job, no assets” (also affectionately known as NINJA loans) were not sold to Fannie Mae or Freddie Mac but kept within the portfolios of private banks.
These “portfolio” loans characteristically carry higher interest rates. And adjustable rate programs and “balloon” loans that need to be paid off in a short period of time prove disastrous if rates ever rise.
Expanding HARP 3.0 to include these borrowers will help thousands of homeowners dispose of toxic mortgage programs into a conventional note.
Will HARP 3.0 make it to the floor of the Senate and pass in 2014? While the program makes sense for the borrowers expanding the program to include non-conventional loans has met some resistance. One of the objections is how the new program would relax certain income and employment verifications. This means the lender won’t be required to verify income for the borrowers and many say this is one of the main reasons borrowers got into trouble in the first place, putting people in mortgages that they couldn’t afford.
Another item of concern is allowing for one mortgage late payment within the previous six months instead of twelve. Currently, a HARP 2.0 loan can’t be approved if there are any late payments within the past six months. HARP 3.0 might waive that.
Another problem in today’s political climate is that Congress is fairly busy with things such as the Affordable Care Act, a new budget and a government shutdown. While HARP 3.0 might be a good thing, there are too many other items that are taking up all the oxygen.
Congress may be too busy to pass HARP 3.0 in 2013, but many home owners are hopeful new HARP guidelines will be introduced in 2014.
The President had been making speeches pushing HARP 3.0 as early as last August 2013 telling the American public that passage was, in his words, a “no-brainer.” But there has been a flurry of political and economic activity both here and abroad that is commanding the attention of Congress more than concentrating on getting HARP 3.0 to fruition. HARP 3.0 looks good on paper; but getting it a sweeping “yes” vote will be a challenge.
If you haven’t refinanced with HARP yet, rates are still low. Contact us here or call the phone number above to speak to a HARP expert.