Waiting for HARP 3 to pass Congress? Your wait may be just about over.
Congressional representative Mel Watt was confirmed as Director of the Federal Housing Finance Agency (FHFA) Tuesday. The FHFA controls Fannie Mae and Freddie Mac, and administers the Home Affordable Refinance Program (HARP).
Watt is considered to be more consumer-friendly than his predecessor, Ed DeMarco.
With Watt at the helm, the FHFA is expected to overhaul HARP in order to provide low mortgage rate relief to troubled U.S. homeowners stuck with above-market rate loans.
HARP 3 could be here soon. Confirm your HARP mortgage eligibility.
What Is HARP?
HARP stands for Home Affordable Refinance Program. It’s an economic stimulus program, first launched in March 2009 with monies from that year’s Housing and Recovery Act.
HARP was launched to help U.S. homeowners whose homes had lost equity gain access to new, lower mortgage rates for which they would otherwise be unqualified.
When HARP was released four years ago, mortgage rates had just dropped 1.50 percentage points and U.S. homeowners were eager to refinance. However, few were eligible because their home had lost so much value.
To refinance meant one of two things. One, pay private mortgage insurance (PMI) — for which costs were exploding. Or, two, bring large amounts of cash to closing in order to reach 80% loan-to-value.
For most U.S. homeowners, both paths were non-starters. Then came HARP.
Via HARP, the government instructed lenders to ignore the standard private mortgage insurance requirements and to treat the homeowner’s loan as if it was at its original LTV.
HARP only required that homeowners have a mortgage backed by Fannie Mae or Freddie Mac, and a reasonably strong payment history.
When the government announced HARP, the typical refinancing household was expected to save $3,000 annually. But mortgage rates kept falling and the “$3,000 per year” projection was proved to be too low. Many homeowners saved $5,000 or more in their first year with the Home Affordable Refinance Program.
The program, however, was not without its flaws.
For example, HARP guidelines enforced a 125% loan-to-value limit on refinancing households which meant that loans over 125% LTV could not be HARP-eligible.
The guideline had little effect on homeowners in cities such Boston, Massachusetts; Denver, Colorado; or Cincinnati, Ohio where home values fell only modestly last decade. For homeowners in hard-hit cities, though, including Phoenix, Arizona; San Francisco, California; and Las Vegas, Nevada, HARP remained out of reach.
As another example, the language of the Home Affordable Refinance Program was written such that refinancing lenders were responsible for any underwriting errors made by the loan’s original mortgage lender. If Wells Fargo refinanced a Countrywide mortgage via HARP, Wells Fargo would be responsible for Countrywide’s original due diligence on the loan.
This particular liability clause created huge risk for HARP lenders. In response, many simply chose to refinance their own loans only — a trait known as “same-servicer” refinancing.
Homeowners could only HARP-refinance a Wells Fargo loan with Wells Fargo; a Bank of America loan with Bank of America; a Chase loan with Chase; and so on.
In part because of these restrictions, HARP failed to reach the 7 million households it was originally meant to help. After nearly 3 years, in fact, it hadn’t even reached one million households.
That’s when the FHFA revamped and re-released HARP as “HARP 2.0”.
HARP 2.0 Expands The HARP Program
“HARP 2.0” was the government’s response to sagging HARP refinance figures.
Fewer than 1 million homes had been refinanced between the program’s launch date and late-2011. So, to boost the program’s adoption rate, the Federal Housing Finance Agency re-released the program, removing some of its restrictions.
The first restriction removed was HARP’s limit on loan-to-value.
Under HARP 2, mortgage lenders were instructed to ignore a home’s current value and to refinance it anyway — regardless of much home equity had been lost. Loans above 125% LTV were finally welcome under HARP 2, and this rendered millions of additional homeowners eligible.
The second big change was linked to lenders.
Under HARP 2, the FHFA stopped holding mortgage lenders responsible for the original underwriting errors made by a loan’s original lender. “Same-servicer” requirements no longer applied and lenders activity sought HARP loans to underwrite and fund.
HARP 2 was a hit.
In the first month during which the revamped program was widely-available, more than 40 percent of closed HARP loans were for homeowners with a loan-to-value exceeding 125% — loans which would have been impossible under HARP 1; and many were cross-servicer, too.
The number of monthly closed loans topped 100,000 for the first time that month and more than 1 million HARP loans closed in the program’s first 12 months — more than during the preceding three years combined.
Since April 2013, though, HARP volume has slowed.
There were fewer Home Affordable Refinance closings in August of this year than during any month since HARP 2’s launch. The program may be readying for an overhaul. HARP 3 may launch within weeks.
HARP 3 Comes Closer To A Launch Date
HARP 3 is the next release of HARP. It’s a program which has been talked about for months, but not yet made into law.
The passage of HARP 3 grows more likely with Mel Watt at the helm of the FHFA because, as a congressman, Watt pushed for homeowner assistance programs and increased access to credit. He is expected to continue that advocacy as head of Fannie Mae and Freddie Mac.
For homeowners, this could lead to a number of meaningful changes.
As one example, the new FHFA may reduce some of its guarantee fees — costs charged to lenders and passed on to consumers in order to insure mortgage bonds against loss.
“G-fees” have been incrementally increased since early-2011, and are scheduled to rise again in next spring.
Without FHFA G-fees, conforming mortgage rates would be lower by as much as 0.75 percentage points.
However, it’s the passage of a HARP 3-like program that has U.S. homeowners most excited about Mel Watt. A HARP revamp would likely expand the program to reach millions of additional households, and may even allow current HARP homeowners to refinance via the program a second (or third) time.
Some of the potential HARP 3 enhancements include :
- Changing the program eligibility date : Currently, to be HARP-eligible, your loan must be originated no later than May 31, 2009. With HARP 3.0, eligibility dates may move into 2010 or 2011.
- Allowing non-Fannie Mae and non-Freddie Mac mortgages : Currently, only loans backed the FHFA are HARP-eligible. With HARP 3.0, eligibility may be extended to include Alt-A, subprime, and bank-held loans, too.
- Permit the refinance of an existing HARP loan : Currently, the HARP program is one-use only. With HARP 3.0, homeowners may be allowed to “Re-HARP” an existing HARP mortgage.
- Make HARP a true “streamlined” refinance : Currently, HARP requires some paperwork. With HARP 3.0, the program could mirror the streamlined programs of the FHA, VA and USDA for faster, simpler approvals.
Each of these enhancements would jump-start the Home Affordable Refinance Program and, by extension, the U.S. economy. Refinances help boost consumer spending which helps to keep job growth strong.
With Watt confirmed at the FHFA, HARP 3 could pass at any time. Will you be ready for it?
How To Get Ready For HARP 3
Mel Watt is the new Director of the Federal Housing Finance Agency, the parent of Fannie Mae and Freddie Mac; and Fannie Mae and Freddie Mac run HARP. Given Watt’s consumer-friendly outlook, it may be weeks or days before HARP 3 is available to every day U.S. homeowners.
Will you be ready for HARP 3 when it comes? Confirm your Home Affordable Refinance Program eligibility online with a personalized mortgage rate quote. Rates are free, and there’s no obligation to proceed.