As of this writing, the recently announced changes to the Home Affordable Refinance Program (HARP) have yet to be implemented by many lenders.
To recap, HARP began a couple of years ago, designed to help homeowners with good credit and qualifying income and assets to refinance their home and lower their interest rate.
Because of tumbling property values, however, millions of homeowners failed to meet the loan-to-value (LTV) requirements to refinance their mortgages.
HARP's intent was to tell the homeowner this: "If you have good credit, income and assets but you fail to qualify for a refinance because the value of your home dropped through no fault of your own, HARP will waive the LTV requirement so you can lower your rate and payment and help jump-start the economy."
The program was mostly a flop because of the nit-picky details tangled within it. Last month, the Federal Housing Finance Agency (FHFA) announced that changes were being made to HARP to remove those details so more homeowners would qualify.
Specifically, the new HARP program would:
- Eliminate the existing LTV limit of 125 percent.
- Require lenders holding a second trust to automatically subordinate to the first mortgage holder during the refinance process.
- Require private mortgage insurance companies to automatically transfer the PMI to the new lender.
- Most important, prevent mortgage giants Fannie Mae and Freddie Mac from requiring lenders to buy back a loan in the event they find a flaw in the loan file.
As I said, I have yet to see a flood of lenders offering HARP refinances under these new guidelines. But since the last time I wrote on this subject, I have observed some in the media criticizing HARP by accusing the mortgage industry of going back to subprime lending.
This could not be further from the truth. The subprime frenzy was a train wreck waiting to happen. The subprime market can be defined simply: Offer high-interest, risky loans to borrowers who have lousy credit. Such an insane policy was supported by the American public, the mortgage industry, Wall Street and the federal government. We all know what happened in the aftermath of the subprime boom.
HARP is something totally different. It seeks to help qualified and responsible homeowners refinance to today's low rates. Taking cash out is not permitted, and good credit, income and assets are required.
If the cobwebs are removed from HARP, enabling many more homeowners to refinance, we will see two major benefits.
First, for those who still have good credit but may be struggling, a lower rate and payment might prevent them from defaulting on their loan.
Second, increased refinance activity for the purpose of lowering the interest rate and monthly payment will result in the savings of millions of dollars. This money must go somewhere. Presumably, some will go into savings accounts and the rest will be spent, which is what this economy needs.
Henry Savage is president of PMC Mortgage in Alexandria. Send email to email@example.com.