HARP 3? It's All The Rage

What? HARP 3? Didn't we just start HARP 2?

Yes, we did. Follow the bouncing ball....

While it may be to your advantage to refinance now on HARP 2, let's make sure it's a good idea...start here: http://www.mijoymortgage.com/UNDERWATER_HARP_2.0.html.

OK, onto the latest news of the day.....will there be a HARP 3? Following is a pretty detailed look at the questions of "if" and "why." The fact is HARP 2 has not been an effective across-the-board remedy for everyone.

To make all of this easy, contact me for an evaluation after you visit: http://www.mijoymortgage.com/UNDERWATER_HARP_2.0.html.

I am evaluating individual scenarios on a case-by-case basis. Some HARP 2 refinances make really good sense and some don't. For certain you will get honest answers. Check out my testimonials: http://www.mijoymortgage.com/Testimonials.html.

HARP…HARP 2.0…HARP 3.0…HARP 4.0... will the industry have trouble keeping track of which borrower refinanced under which HARP? The Home Affordable Refinance Program certainly has its proponents, and its critics, along with a fair number of LOs/lenders who are on the fence about it, warily watching what happens.

While the HARP 2.0 program is not even 6 months old, there is already chatter about a “new and improved” policy that could represent a new phase of refinancing-related policy risk. There have been critics from the start, of course, and this is giving them fodder to ask, “Why didn’t they do it right the first time? What makes us think that this will be the last HARP?” And borrowers, faced with rumors of kinder, gentler HARP, are wondering what is in store for them.

A big factor in the whole process, of course, are the overlays that have been put in place by the aggregators. We know that neither President Obama nor Congress set underwriting guidelines. And FHFA’s Freddie Mac and Fannie Mae may give a program to our lenders, but if the aggregators put on overlays then those lenders who can will go directly to Fannie Mae.

Recently the Senate Banking Committee held a hearing about some of the initiatives highlighted in President Obama’s plan to “Help Responsible Homeowners and Heal the Housing Market.” While there are many facets to the plan, the most recent substantive discussion focused on initiatives to help agency borrowers refinance. Some find it fascinating that, in spite of the government’s apparent desire to extricate itself from supporting the mortgage market, proposals continue to pop up suggesting the exact opposite.

A key part of the discussion focused on examining the Menendez-Boxer discussion draft of the “Responsible Homeowner Refinancing Act of 2012”. What are the HARP enhancements that are being contemplated? Well, the discussion draft has a host of recommended changes to the HARP platform. Generally, they fall along the lines outlined under President Obama’s plan to “Help Responsible Homeowners and Heal the Housing Market.”

On the agency side (Fannie/Freddie, the "GSE's"), the key principals of the plan threefold: to eliminate appraisal costs for all borrowers, increase competition so borrowers get the best possible deal, and extend streamlined refinancing for all GSE borrowers. The Menendez-Boxer discussion draft details how the administration is planning to achieve these aims.

Experts suggest that there are two significant issues that the politicians are looking to address. One is to introduce measures to facilitate cross-servicer refinancing ( a new loan being done by a lender who does not currently service the existing loan), and the other is to increase the amount of borrowers eligible for the program by reducing eligibility criteria. As best anyone can tell, the key focus seems to be in encouraging cross servicer refinancing – something that the big aggregators have discouraged using LTV overlays and other restrictions to accomplish. As one senior executive at a Top 5 aggregator told me, “None of us want to be financially or legally responsible for someone else’s junk.”

The biggest push seems to be reducing barriers for cross-servicer refinancing to promote competition and lower mortgage rates. There are a couple key ways that the bill proposes to accomplish this. First, Fannie Mae and Freddie Mac would be prohibited from disqualifying or varying borrower eligibility requirements based on LTV, CLTV, employment status, or income. (Currently, borrowers under the manual - same servicer - process qualify for HARP based exclusively on payment history, borrower benefit provisions, and verbal verification of employment. The threshold for cross-servicer refinancing is much higher under the automated underwriting systems.) Lenders using AUS for a cross-servicer HARP refinance are required to collect documentation and borrower credit, are subject to debt-to-income limits within DU/LP (Fannie & Freddie's underwriting systems), and are subject to different pay history requirements across FNMA  (Fannie) and FHLMC (Freddie).

Effectively, as any loan officer or underwriter can tell us, the cross-servicer refinance is much closer to a full underwrite of the loan, while the manual HARP process is closer to a no-underwriting process. Disallowing any variance across same- and cross-servicer refinances in employment status and income eligibility, could ease borrower qualification for cross-servicer refinances and promote competition.

Second, the reps and warrants for cross-servicer refinances would be eased to match those of same-servicer refinancing. Under HARP 2.0, lenders under the manual process are relieved of most reps and warranties on the old and new loan provided that borrowers satisfy payment history requirements and borrower benefit provisions, and have their employment verified verbally. For cross-servicer refinancing, lenders retain significant rep and warranty risk on the new loan. They are responsible for the loan case file being complete, accurate, and not fraudulent. Furthermore, they must comply with the underwriting documentation requirements regarding income, employment, asset, and property fieldwork. If any of these are incomplete, the lenders could be on the hook for reps and warrants on the new loan. And, as mentioned above, who wants to deal with another lender’s junk?

While these rep and warrant issues may sound somewhat mild, those for cross-servicer refinancing under DU and LP are very similar to what existed before HARP 2.0. Generally, there have only been changes to the reps and warrants on property valuation when an AVM is used. It’s important to note that these issues do present a significant issue for qualifying for loan from a new lender.

Until next time...