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 RAHAPP Mortgage could be a Precursor of HARP 3.0
Started in April 2013, home owners in three Oregon counties have utilized a pilot refinance program that may prove more effective than HARP. The average home owner has saved $427 per month by using this program.
The “Merkley Mortgage,” officially known as the Rebuilding American Homeownership Assistance (RAHA) Pilot Program or simply RAHAPP, was introduced by U.S. Senator Jeff Merkley (D-Ore.) and was approved by the Treasury Department early in 2013.
This program allows Oregon homeowners in Multnomah, Clackamas, and Washington counties to refinance underwater mortgages even if the loan is not currently held by Fannie Mae or Freddie Mac. The current Home Affordable Refinance Program (HARP) requires loans refinanced under that program to be owned by Fannie or Freddie, which has locked many people out of a lower rate.
Under the RAHA Pilot Program, borrowers must live in select counties and:
- Be current on their mortgage
- Intend to live in the home for 5+ years
- Own no other residential property
- Have significant negative equity (be underwater)
Is Merkley’s RAHA Pilot Program a Forerunner of HARP 3.0?
According to a press release on Merkley’s website, this pilot program may be a model for a similar national program. The “Merkley Mortgage” would do what many hoped HARP 3.0 would accomplish. So far, no revisions to the HARP program have been implemented since HARP 2.0 in March 2012, except for extending it to 2015.
HARP has helped over 2.8 million underwater homeowners refinance into lower rates since its debut in 2009. But it has fallen short of expectations. Many call HARP too restrictive because a significant portion of homeowners don’t have a Fannie Mae or Freddie Mac loan.
People who opened popular option arms, sub-prime loans, and Alt-A loans in the mid-2000s are not eligible for HARP because their loans did not fall within Fannie or Freddie guidelines. Even though many of these homeowners have faithfully paid their mortgages since the crisis, they can’t refinance. The “Merkley Mortgage,” if it goes national, could fill the huge gap left by HARP 2.0.
Loan Options Under the “Merkley Mortgage”
There are two loan options available with the RAHA Pilot Program.
- A 15-year loan at a 4% (4.129%APR) fixed rate
- A 30-year loan at a 5% (5.077% APR) fixed rate
According to Merkley, these lower mortgage rates will help homeowners stay in their homes. This in turn will keep neighborhoods and communities from the cycle of foreclosures and declining home prices.
Why Oregon Only?
Just like any large undertaking, a test run on a small scale is often the best way to see how a larger version will perform. Launching the program in this way limits financial exposure but will give clues as to how the program would act on a national scale.
Senator Merkley, the former executive director of Habitat for Humanity in Portland, now represents Oregon in the Senate. He spent six months devising the RAHAPP plan, so it makes sense that his state is home to the pilot program.
Merkley Mortgage Already Expanding
The program started in just one county: Multnomah County. This county is Oregon’s most populous, and contains Portland. It was hard-hit by the housing crisis.
Now, two nearby counties have been added to the pilot program: Clackamas and Washington counties. If the program keeps expanding, we could see a statewide program for Oregon, and hopefully a nationwide program thereafter.
When Will the “Merkley Mortgage” be Open to All?
There are no estimates as to when or if a national version of the RAHAPP will come about. A lot depends on the Oregon test run. If it proves to financially viable, we could see other pilots or even a full-fledged national program.
Oregon is using $10 million from its Hardest Hit Fund to finance the program. Could other states who received Hardest Hit Fund dollars such as California, Florida, or Arizona implement a pilot program next? No one knows, but it’s a conceivable next step.
If the plan ends up paying for itself or even turning a profit, a national version could get traction in Congress. Would a final version be called RAH, RAHA, or HARP 3.0? (Its name has already been changed once during the plan’s initial stages from RAHPP to RAHAPP, adding “assistance” to the title.) Regardless of its final name, it’s clear that the program could help millions of homeowners.
Indeed, a lot is riding on Oregon homeowners. A win in Oregon could mean thousands or millions more underwater homeowners will have the opportunity to refinance into a low rate. If the RAHAPP is a success, we could see a brand new type of refinance that rivals or even surpasses HARP.