- - Thursday, January 19, 2012

Q. I have read your columns about the Fed’s decision to revamp the Home Affordable Refinance Program (HARP) and have not seen anything since early December. Can you give us an update?

A. It appears that the lenders are very slow to adopt the new policies of HARP.

For those who are unfamiliar, HARP was designed to allow homeowners with good credit to refinance to today’s lower rates even if their property values have dropped to a level that’s below the mortgage balance. Basically, HARP accepts refinance applicants as long as the loan balance doesn’t exceed 125 percent of the home’s current value. Traditional underwriting guidelines would require 20 percent equity in order to qualify for the best rates.

The program was largely unsuccessful because it was bogged down with nitpicky rules that made much of its target market ineligible. In December, the Fed announced that HARP was being revamped and simplified to increase its pool of eligible borrowers.

So far, I haven’t seen a significant change in the program. One of the changes was to eliminate the loan-to-value requirement. Few lenders have adopted this policy, and from my perspective, this change will positively affect only the hardest-hit areas, such as Arizona and Florida.

In my opinion, HARP will not be successful until it addresses the following:

c Loans with second trusts cannot take advantage of HARP because the second-trust note holder refuses to subordinate to the new loan.

c Loans with private mortgage insurance (PMI) cannot refinance because the PMI companies won’t renew the insurance if the loan is refinanced.

c Most important, mortgage giants Fannie Mae and Freddie Mac continue, without admitting it, to use every trick in the book to find a reason to force a lender to buy back a loan. Until Fannie and Freddie openly purchase and accept qualified loans that have been approved with common-sense underwriting, lenders are going be very slow to adopt programs such as HARP.

Frankly, there is much talk, but not much substance. New York Fed President William Dudley recently made remarks supporting changes in underwriting guidelines to increase refinance activity. Specifically, he said he would like to see “refinancing made broadly available on streamlined terms and with moderate fees to all prime conforming borrowers who are current on their payments.”

Sounds like a common-sense approach to me. Stay tuned. I’ll be the first to spread the word if common sense is ever brought back into mortgage financing.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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