Why Lenders Are Falling Over Backwards For Your HARP Mortgage Application
HARP : Average Loan-To-Value By State
HARP 2.0 launched in mid-March 2012. In the six weeks since, the market for HARP 2.0 home loans has grown ultra-competitive. Banks from California to Connecticut are jumping on the HARP bandwagon, hoping to capitalize on the biggest refinancing frenzy in more than a decade.
HARP : The "Underwater Mortgage" Program
HARP is part of the government's Making Home Affordable program. The program was first introduced in 2009 as part of an economic stimulus package and was touted as a way for "up to 7 million homeowners" who are current on their respective home loans to refinance to today's low mortgage rates despite having little or no home equity.
HARP was billed as the "underwater mortgage" refinance program and, not surprisingly, demand was high among U.S. homeowners. The housing market was two years past its peak and, as mortgage rates slipped into the 5-percent range, millions of U.S. homeowners were anxious to take advantage.
Lenders had different ideas, however, because for as much as HARP's mortgage guidelines were favorable to homeowners, they included clauses and obligations rife with lending risk.
Specifically, lenders bore the underwriting risks of the HARP applicant's initial mortgage loan. This meant that if Wells Fargo wanted to do a HARP refinance of a Bank of America mortgage, Wells Fargo would have to assume responsibility for Bank of America's original mortgage approval.
If Bank of America approved a loan "by accident" or against generally-acceptable underwriting standards, in doing a HARP refinance of that loan, Wells Fargo would be on the hook for the loan if something went bad.
This led to two predictable outcomes. First, banks were hesitant to HARP-refinance another bank's loans. And, second, HARP failed to reach its potential.
The initial HARP reached fewer than 1 million households.
HARP 2 : Getting HARP To More Households
It was clear than HARP was not working in its current format so, in March 2012, HARP was re-released with a new set of guidelines.
Meant to be "looser" for both U.S. homeowners and mortgage lenders, HARP 2.0 bridges the gap between the 1 million households helped by HARP initial release and the 7 million households the program was promised to reach.
Some of the changes in HARP were dramatic.
For example, HARP 2.0 removes all loan-to-value limitations for households refinancing into a fixed-rate mortgage and, in most cases, requires no home appraisal at all. Prior to HARP's re-release, HARP loans were capped at 125% LTV. Some were even restricted to values less than that.
Banks Get Busy With HARP 2 Mortgages
Another change in the HARP program is that income documentation is waived, by the letter of the guidelines. This streamlines the loan approval process and makes it possible for unemployed persons to refinance their Fannie Mae- or Freddie Mac-backed mortgage so long as they have a strong payment history.
There were about a half-dozen such changes -- you can read about them in this comprehensive HARP 2.0 review -- but perhaps the biggest change with HARP 2.0 is that the new guidelines specifically absolve refinancing lenders from responsibility for most mistakes made during the original mortgage underwrite.
From the example above, Wells Fargo would no longer be liable for Bank of America's errors.
It's this change that will help HARP 2.0 fulfill HARP 1's promise. With HARP 2.0, in theory, HARP lenders earn equal profits on loans, while assuming fewer levels of lending risk.
There's competition for HARP loans now. Lots of banks are participating so, as a homeowner, you can take your HARP business anywhere you want. We didn't see this in 2009.
If your bank is giving you high HARP rates and you want to shop around, do it. If your bank is telling you it's too busy for your business, call someone else. It pays to "shop around" when you're shopping for HARP.
Is HARP 3 Next?
HARP 2 has been an early success and it's stoked calls for HARP 3 -- a HARP program for non-Fannie Mae and non-Freddie Mac mortgages.
HARP 3 would have similar underwriting standards, but would specifically apply to homeowners whose existing mortgage is a jumbo mortgage, non-conforming mortgage, Alt-A mortgage, or some other private-money product. HARP 3 is just a talking point today but could come to pass in the coming months.