By all accounts, the HARP program has been less than successful, and there have been several changes over the past few years to try to improve its’ dismal track record. The most recent of these changes were announced on Monday October 24.
The program was originally to help some 5 million homeowners, as of August 31, 2011, about 894,000 homeowners were actually helped. This number is not quite as good as one would believe, since if you drill down through the data, about 20% of the HARP loans refinanced had LTV ratios of between 105 and 125%, and the rest were either slightly underwater or had positive equity.
The new program is called HARP Phase II.
The changes are actually for the better, and will expand the number of loans which are eligible for the program. The program does not help everybody, and imposes a significant restriction on people who followed their banks advice when they attempted to obtain a loan modification, as will be discussed below. The big change is that the previous 125% LTV cap has been lifted.
Here are the main features of the program:
- Your mortgage must have been issued before May 31, 2009.
- Your mortgage must have been sold to Fannie Mae or Freddie Mac. If you are unsure of this, go to these websites: www.fanniemae.com/loanlookup
Or ww3.freddiemac.com/corporate to see if your loan is owned by one of them.
- You cannot have previously refinanced under HARP, unless you fit a very narrow Fannie Mae window for a previous refinance.
- The current loan to value ration must be greater than 80%.
- There is no LTV cap. The prior 125% LTV cap has been eliminated.
- The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.
- The new program will become effective in early 2012. HARP itself has been extended to December 31, 2013.
- If you are refinancing from a fixed rate mortgage to an adjustable rate mortgage, the loan to value ratio is 105%
- Condominiums remain eligible for refinancing, assuming the above criteria are met.
A major shift has been to shortening mortgage terms. Previously, HARP loans were refinanced into 30 year loans. New shorter term loans supposedly will help borrowers pay down their mortgages and build equity more quickly. Also, the interest rates on HARP loans for shorter term loans are lower than for 30 year loans, which will impact the monthly payments.
Analysis:
Like the previous HARP program, there is no teeth to HARP II. Making HARP loans continues to be voluntary on the part of the lending industry. According to a Bloomberg article, most lenders don’t foresee making these loans, because they are considered high risk. In addition, with Fannie Mae and Freddie Mac being more and more cautious, lenders are worried about “claw backs” in the event a HARP loan goes bad.
Industry estimates are that about 600,000 loans will meet the new criteria and be eligible for HARP II.
The biggest disqualifying factor remains the loan history. Homeowners who approached their loan servicers about a loan modification, are uniformly told that if their loan is current there is no chance of a loan modification; most are told to be 60 to 90 days late. This means that if you attempted to obtain a loan modification before HARP II, you are not eligible for HARP II and have to continue on the loan modification or short sale path.
Until HARP is modified to allow a way out for homeowners who are facing loan modification hell, it is going to be far less effective than Washington and the news media hope.
