Editor’s Note: The HARP program expired Dec. 31, 2018, but most homes have increased in value considerably since HARP rolled out. This means many homeowners may currently be eligible for a standard conventional refinance.
The Home Affordable Refinance Program, or HARP 2.0, has helped millions of homeowners refinance into a lower rate and payment, even though they are underwater.
Still, many are pushing for Congress to repeal certain HARP restrictions. Here are 14 upgrades that would allow HARP to help more homeowners in 2014.
Upgrade #1: Allow non-GSE loans
Only loans owned by Fannie Mae and Freddie Mac, also known as government sponsored enterprises (GSEs), are eligible for HARP. This locks out millions of homeowners who have Alt-A loans, jumbo loans, Option ARMs.
The HARP program should be opened up to homeowners who have faithfully paid their mortgages, even if those mortgages are not owned by Fannie Mae or Freddie Mac.
The idea is not a new one. A pilot program, nicknamed the Merkley Mortgage, started in Oregon earlier this year allows homeowners to refinance no matter what kind of home loan they currently have. The program has already expanded from one Oregon county to three. Could this HARP-like loan show Congress that the same idea would work nationwide?
Upgrade #2: Remove 5/31/09 Cutoff
As it stands, only loans closed on or before May 31, 2009 are eligible for HARP.
There are millions of homeowners who have a Fannie Mae or Freddie Mac loan with a closing date after the cutoff. Congress should remove this seemingly arbitrary date, or at least move it forward a year, so more could benefit from HARP 2.0.
Upgrade #3: Remove Income Verification Requirement
Not requiring proof of income sounds an awful lot like shady 2000s lending.
But it makes sense. Refinance loan programs offered by FHA and the Veterans Administration have been offering no-income refinances for years, with great success.
The reasoning is that, since Fannie Mae and Freddie Mac already own the loans, they have nothing to lose by offering a borrower a lower payment. If that borrower has no income, they will default even faster with higher payments.
This upgrade has little chance of happening, since it contradicts new Consumer Finance Protection Bureau mortgage rules that take effect in 2014. Still, if an exception were made only to those already with a Fannie Mae and Freddie Mac loan, it would make HARP a more effective refinance option.
Upgrade #4: Remove HARP Appraisal Fees
Fannie Mae and Freddie Mac already have in their records the estimated values for the homes in their portfolios. For this reason, many HARP loans today don’t need an appraisal.
In 2014, Congress should amend HARP rules so that even fewer appraisals are needed. When appraisals are needed, the fee should be waived. This would eliminate the cost to the borrower and encourage many more to apply.
Upgrade #5: Create Equal Standards Between HARP Lenders
U.S. Senator Barbara Boxer, who has introduced a bill that seeks to expand HARP, says that lenders face tougher underwriting restrictions if they are not the borrower’s current servicer. A new lender may have to buy back a HARP loan that goes bad, an expensive process.
According to Boxer, creating the same standards for new servicers as for existing servicers would go a long way in “leveling the playing field and unlocking competition between banks” which would lower HARP 2.0 refinance costs.
Upgrade #6: Allow Sub-80% Loan-to-Value HARP Refinances
It seems odd, but HARP loans often have lower fees and rates than do standard conventional refinances. So someone who has zero equity could have a lower rate than someone with 25% equity.
In 2014, the HARP 2.0 program should allow faithful homeowners who still have equity in their homes to use HARP and gain access to the lowest rate possible.
Upgrade #7: Implement a HARP Funding Fee for Certain HARP Loans
One argument against allowing non-Fannie Mae and non-Freddie Mac loans to participate in HARP is the potential increased risk taken on by these companies.
To make a HARP program less risky to Fannie and Freddie, and more acceptable to lawmakers, a funding fee should be introduced for non-GSE loans. This would reduce the financial risk of adding these loans to Fannie and Freddie portfolios.
Upgrade #8: An LTV Cap for Non-Fannie/Freddie Loans
There’s a lot of bargaining that goes on when trying to pass a law. A 2014 HARP bill would be no exception.
That’s why new HARP legislation should include a loan-to-value limit for loans not already owned by Fannie Mae and Freddie Mac. Loan-to-value is the ratio between the home’s worth and the amount of the loan.
When HARP was introduced in 2009, it capped loan-to-value at 125%. So someone with a $100,000 home could only refinance up to $125,000. When HARP found its footing, the program was expanded to allow unlimited loan-to-value.
The same principle could be implemented to allow non-GSE loans into HARP. Once it proved successful, unlimited loan-to-value could become available to all.
Upgrade #9: Roll Out HARP 3.0 Test Markets
The best way to find out if a product will be a success is to test it out in a small market. The results give real-world evidence of how it will perform on a large scale.
Congress should pick a few cities in which to test out a HARP 3.0 program, such as Phoenix, Miami, Los Angeles, Chicago, and Detroit, to see how it performs in different areas. The program could be adjusted as needed before it’s rolled out nationwide.
Upgrade #10: Collect a Buyer Database for HARP Foreclosed Properties
Inevitably, expanding HARP will increase the amount of foreclosures on Fannie Mae’s and Freddie Mac’s books.
One way to combat bad loans is to quickly sell the foreclosed properties. A database of eager buyers should be collected via an official website, so buyers can be notified of newly available properties in their area.
Upgrade #11: Create a Single Website to Check HARP Eligibility
As it stands, borrowers have to go to two separate websites to check their HARP eligibility. Fannie Mae and Freddie Mac have different sites and methods of loan look-up. It shouldn’t be too hard to set up a single database so that borrowers can easily check if they are eligible.
Better yet, open up HARP to all borrowers, which eliminates entirely the need to look up who owns the loan.
Upgrade #12: Allow re-HARPing
Borrowers who have used HARP in the past may not use it again. But a HARP expansion in 2014 could easily repeal this rule.
Many borrowers who used HARP in 2009 and 2010 have a higher rate than is available now. These borrowers should not be locked out of refinancing again with HARP.
Upgrade #13: Allow HARP Loan Sizes up to $729,750
Between 2009 and 2011, borrowers in high-cost areas could finance up to $729,750 as a conforming Fannie Mae or Freddie Mac loan. But since late 2011, borrowers with loan amounts over $625,500 could not refinance their whole loan amount because limits dropped.
If HARP temporarily increased its loan limits in 2014 and 2015 to prior levels, it would give many homeowners a chance to save significant amounts of money each month.
Upgrade #14: Make it Easier to Qualify for HARP after Bankruptcy
Technically, HARP does not require a waiting period after bankruptcy. You just have to show good housing payment history for the past 12 months.
But automated underwriting findings, the computer systems that determine if you qualify, will typically state you are not approved for HARP if there’s a bankruptcy on your credit report.
Fannie Mae and Freddie Mac should offer a program similar to FHA’s “Back to Work” guideline. The rule states that a borrower can qualify one year after bankruptcy if it was due to the loss of income in the recession.
Many Possible Changes, None Implemented Yet
If lawmakers could pass just one of two of these changes, the impact could be huge.
Let’s hope Congress seriously considers how much HARP 2.0 enhancements in 2014 could help underwater homeowners.
