BLOG VIEW: I couldn't help but chuckle when I watched a video of Mel Watt, director of the Federal Housing Finance Agency (FHFA), saying in a speech this week that the Home Affordable Refinance Program (HARP) ‘is not a scam.’
Watt's remarks came during a town hall-style event in Atlanta designed to bolster HARP participation rates, which have fallen far short of expectations. I think any time a government official has to explain that a government program is ‘not a scam,’ it's sort of comical – but at the same time, sort of disturbing, because it could be interpreted to mean that the public's distrust of government programs is on the rise.
Watt is right – HARP is not a scam. In fact, I have a friend who is in the program and he says it helped him save his house. The FHFA's challenge is that there is a high number of HARP-related scams in the marketplace, which in turn is making some people think the program might be a scam. This is another case where fraudsters are ruining what many consider to be a decent program.
The interesting thing is that some of the bigger entities in the housing space, in trying to combat the fraud problem, might inadvertently be playing a role in hurting HARP's image. Just for the heck of it, I recently did an Internet search using the phrase ‘HARP scam,’ to see what comes up. Right there, at the top of the first page search results, is a page from Zillow's website with a headline that reads: ‘Don't Fall For A HARP Scam.’
Of course, the article is all about how fraudsters are offering refinancing to struggling homeowners under the banner of HARP – when in fact they are just using the program as a ruse to take people's money in the form of upfront fees and then disappearing. But if read the wrong way, the headline makes it sound like HARP is a scam. I have so far been unable to find official figures as to how many homeowners have been taken by HARP scams, but based on the number of ‘borrower beware’ type articles that are out there, they appear to be rampant.
‘If it sounds too good to be true, it probably is,’ the Zillow article states. ‘Con artists have developed intricate scams that are hard to detect. They take advantage of programs and benefits aimed to help those in need or to improve an individual's livelihood and offer 'too good to be true services' that are not legitimate. It is important that you do your research and know what to watch out for.’
I know that the purpose of such announcements is to build consumer awareness and steer people away from such scams, but if I were a homeowner looking to refinance for the first time, that statement – ‘hard to detect’ – it might be enough to make me want to stay from HARP completely.
‘Homeowners who have fallen for HARP-related scams may have been contacted by a third party other than their lender to discuss refinance options and were asked to fill out paperwork with their personal information, or charged a fee for counseling,’ the Zillow article states. ‘They may also have been told that the third party would handle all interaction with the lender.’
But wait, aren't there ‘legitimate’ organizations out there that are doing something very close to just that?
As for finding one of those ‘legitimate’ HARP lenders, Zillow suggests that one simply look for the HARP logo – yeah, as if that isn't hard to replicate.
The other problem stems from HARP's high denial rate. Although statistics on the number of denials is not available to the public, there are a good number of borrowers who are simply afraid to apply for fear that they will be declined. These denials follow hours and hours of filling out paperwork, not to mention the fact that many of these homeowners worked for months, maybe years, to try to restore their credit so that they might qualify. If you go online, you can find multitudes of testimonials from folks who say they were utterly bewildered when they were declined a HARP loan. The anecdotal evidence is quite damning.
Also contributing to HARP's image problem, I think, is that the FHFA has had to adjust the program numerous times since it was launched in 2009. Originally, it was forecast that 4 million to 5 million borrowers would take advantage of the program; however, problems with its design, combined with rising interest rates, resulted in lower participation than had been anticipated.
In response, the FHFA, along with government-sponsored enterprises Fannie Mae and Freddie Mac and other industry stakeholders, identified the issues that were deterring homeowners from using the program, including the fact that loans with loan-to-value (LTV) ratios greater than 125% were not eligible for HARP refinances and that the program's short duration (approximately 15 months) was discouraging lenders from participating.
After soliciting feedback from stakeholders, many of these problems were addressed, compromises were made and in October 2011, a re-branded program, ‘HARP 2.0,’ was launched. Changes included removing the 125% LTV ceiling and extending the duration of the program to Dec. 31, 2015.
Since then, however, participation has continued to fall short of expectations. Often when programs aren't rolled out smoothly, they are not as successful.
The FHFA says it has identified about 800,000 distressed homeowners (as of June) who could still benefit from the program. What percentage of that 800,000 is likely to be denied, should they apply, I don't know, but I have a feeling it could be well north of 50%.
‘We know that there are hundreds of thousands of borrowers who can still benefit from HARP and are essentially leaving money on the table by not taking advantage of the program,’ Watt said in a statement in May. ‘By engaging directly with local community leaders, faith-based organizations, local elected officials and lenders, our goal is to leverage these trusted sources to reach as many 'in-the-money' borrowers as we can.’
‘Trusted sources,’ huh?
During a recent interview, Watt told another media outlet that part of the reason HARP participation rates are lower than expected is because ‘people don't trust their lenders.’
But when one visits the HARP website to find out how to get a HARP loan, the site basically instructs you to ‘contact your lender first’ – which is interesting when you consider that the government is directing borrowers right back to the very same entities which Watt says they ‘don't trust.’
I would argue that part of HARP's problem is not just that people don't trust their lenders – they don't trust the government, either. For all the reasons above, I think consumers will continue to be suspicious of HARP, no matter how many ‘town-hall style’ events FHFA holds.
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