- - Thursday, May 24, 2012

The very real credit crunch continues. The political pundits keep preaching the sermon of the common-sense lending that’s needed to get credit flowing again in hopes of jump-starting the housing market and spurring refinancing.

Programs have been introduced. The Home Affordable Refinance Program (HARP), initiated a couple of years ago, was designed to help folks with good credit and an evident ability to repay their loans. They were unable to refinance to a lower rate, however, because their property values dropped to a level that made their loan-to-value ratio too high for a traditional refinance.

HARP was implemented to help those folks lower their rate, drop their payment and ultimately throw some money into an anemic economy. Alas, the devil is in the details, and only a fraction of the intended homeowners actually were eligible for the HARP program.

It wasn’t because they didn’t qualify. It was because of the details. If the homeowner carried a second trust or home-equity line of credit, for example, the borrower couldn’t refinance under a HARP loan. Not because HARP wouldn’t allow the second trust but because the bank holding the second trust wouldn’t allow the subordination of the loan.

There also was the problem of private mortgage insurance (PMI). If a qualified HARP candidate carried PMI, the PMI company would refuse to transfer the PMI to the new HARP loan.

As an owner of a mortgage company for 20 years, I found these sorts of things frustrating. I would have to break the bad news to a homeowner with perfect credit, great savings and plenty of income that he couldn’t take advantage of today’s lower rates because of the nonsensical reasons described herein.

The feds got wind of these problems. I heard a speech by President Obama a few months ago, and that speech described my frustration perfectly. Therefore, HARP II was to be introduced. This modified program was to eliminate loan-to-value requirements, require second-trust holders to subordinate to the new, lower-rate loan, and require that PMI be transferred.

Well, not much happened. HARP II was introduced by a few lenders, but the problem of second trusts and PMI still existed. One lender allowed the transfer of PMI - but only if the PMI was carried by a particular company. Why one PMI company and not another? Give me a break.

And then I received an email from a lender that had been accepting HARP II loans. The email said it was restricting the loan-to-value limits and eliminating the PMI transfer for all HARP-eligible clients.

What happened?

I called my lender representative, and she had a very interesting theory. The memo came out on the Monday morning after the announcement on the previous Friday that megabank JPMorgan Chase had lost more than $2 billion in some risky trading debacle.

So it’s up to me, a lowly mortgage guy, to speak to the general public who pay their bills and are financially responsible. I have to tell them they aren’t eligible for a refinance because the lenders suddenly aren’t accepting HARP.

I can tell you folks that my clients of 20 years have contributed nothing to this mess, except for maybe purchasing a property that declined in value. They’re still paying their bills and yet can’t take advantage of Federal Reserve Chairman Ben S. Bernanke’s incredibly low rates.

My lender rep spoke of a HARP III coming out. I laughed out loud.

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

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