I’ve received e-mails, phone calls, and a ton of face-to-face queries about HARP 2.0. Since President Obama announced this new program, there has been a lot of buzz and many are really excited about the prospect of finally being able to refinance out of their current, 5%, 6%, or even 7% mortgage that they’ve been stuck in for the last 4-7 years. However, before they pop the cork on the champagne bottle too soon, a careful glance at the macro and micro guidelines for this program show that it may not be what most are expecting.
The macro-basics of HARP 2.0 are as follows:
- Your loan must be owned by Fannie Mae or Freddie Mac;
- You must be current on your mortgage; and
- You must have originated your current mortgage prior to June 1, 2009.
The most stark difference between this rendition of the program and HARP 1.0 is that the 125% maximum combined loan-to-value (LTV) requirement is gone. This is good, because it allows those who have seen their values cut in half to refinance. However, as I’ve been observing in the marketplace, much desperation has set in and many of those who didn’t qualify for HARP 1.0 due to the LTV requirement have either fallen behind on their payments purposefully to qualify for a loan modification, fallen behind on their payments due to economic forces, or completely lost their homes through the process of foreclosure. Accordingly, many of those who would have qualified for HARP 2.0 no longer qualify now. The small segment of the borrowing public that will benefit from the new HARP will be those who’ve always been able to make their payments. They were completely unfazed and unmotivated or moved by the loan mod craze that took hold of the nation over the last three years. The single or dual income household that never intended to move, borrow more money than they could afford, leave the neighborhood of their dreams, and can still afford the payment as much now as they could back when they purchased, will undoubtedly be the beneficiaries of this program upgrade. However, there is a large slice of the mortgage pie that won’t benefit from HARP II at all.
In the heydays of 2003 – 2007, the mortgage market didn’t utilize Fannie Mae or Freddie Mac as the gold standard. The self-employed utilized stated income, those with high-FICOs but no reportable income got no-Doc deals, and those with quirky financial profiles went hard core Alt-A. These are the people on the fringes who won’t benefit one bit from HARP 2.0. They are the company owners, entrepreneurs, and 1099 collecting consultants and advisers of all professions who pay their bills on time and have good credit, but Fannie Mae and Freddie Mac had nothing to do with their financing. For them, HARP is an orchestra instrument. They are still waiting for their program. These situations represent the micro guidelines that have shut out millions of borrowers. The verifiable income, trade line requirements, in-name assets (as opposed to assets in one’s corporation name), and 4506 IRS transcripts are deal killers. The wage earner with a W-2 can refinance, but the factory owner cutting the wage earner’s paycheck cannot. For many of these people, this seems unfair that only certain borrowers can get refis while others are left in the cold. So to them, HARP 2.0 is a failure that benefits only a few. Indeed, the fanfare behind HARP 2.0 gives many a lot of hope.
For the homeowner with the income to ride out the wave, this new program could be a silver lining in a dark cloud. However, by and large, the hope is unfounded, as many homeowners are still left out in the cold with no ability to refinance, particularly for the self-employed. Until a program comes out which will allow people on the fringes to refi, there will be no major success to be claimed. To date, only 900,000 people have benefitted from HARP 1.0, and unfortunately those who would have qualified for HARP 2.0 in the past can no longer do so in the present due to short sales, loan mods, and foreclosures. On a macro level it sounds great, but on a micro level it leaves way too much to be desired.
Preston Howard is a mortgage broker and Principal of Rose City Realty, Inc. in Pasadena, CA. Specializing in various facets of real estate finance, he can be reached at firstname.lastname@example.org.