Change is good, but sometimes it is not enough. Some mortgage professionals think the Federal Housing Finance Agency (FHFA) might soon announce a third version of the Home Affordable Refinance Program (HARP).
HARP was introduced in 2009 to help underwater homeowners refinance into lower interest rate mortgages. Among the eligibility criteria: The loan had to be owned or guaranteed by Freddie Mac or Fannie Mae and had to be delivered to the government-sponsored enterprise (GSE) on or before May 31, 2009. The loan-to-value (LTV) at the time of the refinance had to be higher than 80% but lower than 125%, and the borrower had to be current on the loan payments, including not missing any payments the prior six months.
By the end of 2011, HARP helped approximately 1 million borrowers – critics noted the program was supposed to assist 7 million consumers – and the agency made enhancements. Phase II, or HARP 2.0, removed the 125% LTV limit, ended some of the fees and extended the expiration date to Dec. 31, 2013.
The changes brought another million or so refinances. In a December 2012 report, the FHFA noted that more than 2.1 million HARP refinances had been completed since the program's inception. Then, in April of this year, the FHFA extended the program to Dec. 31, 2015.
Some people think more changes are coming – and they predict positive effects.
‘If HARP 3.0 does happen, that will flood the economy with disposable income,’ says Brian Thielicke, a partner and certified mortgage planning specialist with Cobalt Mortgage in Tukwila, Wash. ‘It can be a huge boon.’
If more borrowers, especially those who make on-time payments, refinance at a lower interest rate, that could mean extra spending money each month. These consumers will likely spend the cash on anything from home repair to college tuition to retail splurges, which, economists argue, could help further stimulate the economy.
One way to reach more of these spenders, Thielicke says, would be to eliminate HARP's May 2009 deadline for the loan being transferred to a GSE. That cutoff date has prevented some borrowers from refinancing, and it often seems an arbitrary and surprising detail to would-be customers.
‘Some clients we have worked with over the last couple of years meet all the requirements but don't meet the cutoff date,’ he says. ‘The cutoff date is not based on when you bought the property but when the loan went to Fannie or Freddie, which could be three months later.’
The May 2009 cutoff does indeed seem arbitrary, says Rick Sharga, executive vice president for Carrington Mortgage Holdings in Aliso Viejo, Calif. ‘They had to pick a date,’ he says. ‘Realistically, that probably was about when we saw dramatic changes take place in lending practices. The majority of problem loans are loans that were issued in the middle of 2009.’
Sharga does not think there will be a HARP 3.0, but he agrees that changes are likely, if only as a continuum of earlier updates. ‘They extended the end date of the program, they relaxed the reps and warranties issue for lenders who would do the refinance and they waived the appraisal. That's logical because the properties were upside down, so what's an appraisal going to do except tell you how far upside down.’
One change might be for the program to include non-Fannie Mae or Freddie Mac loans. ‘That would essentially take the risk and move it from individual investors or lenders to taxpayers,’ Sharga says. ‘That's not a huge risk, as the loans tend to be performing well because they were for people who were current.’
Sharga thinks there is little need for a new HARP. Home prices are rising, and fewer people will remain upside down on loans. ‘It's not completely out of the question,’ he says. ‘We are coming up on mid-term elections, and anything is possible.’
Dr. Linda Hooks, professor of economics at Washington and Lee University in Lexington, Va., agrees that the housing recovery makes HARP 3.0 less pressing. ‘A lot of homeowners have gotten relief through various government programs,’ she says. ‘There are still some that need help but not as many as before. The broader economic forces will primarily move things along to this point.’
After all, she says, the Federal Reserve has hinted at backing off its expansionary policies, such as its bond-buying program. If HARP were enhanced, though, ‘it would have effects similar to other programs,’ Hooks says. ‘It helps homeowners, but at the same time, it transfers risk to the mortgage companies and the banking industry, so there is a trade-off there.’
Nora Caley is a Denver-based freelance writer.