- The Washington Times - Friday, April 24, 2009

President Obama’s Home Affordable Refinance Program (HARP), which is part of the American Recovery and Reinvestment Act, has been officially introduced and now is offered by many lenders and brokers across the country.

The program is designed to help borrowers refinance their homes to a lower interest rate, although their property value has declined to levels that normally would make them ineligible. I have addressed this issue many times in the past and have been generally doubtful that such a plan, as described, will work.

In summary, the program allows homeowners who currently have loans owned or guaranteed by mortgage giants Fannie Mae and Freddie Mac to refinance even if they have insufficient equity in their home because of declining property values.

After spending the morning speaking with a representative from Fannie Mae, talking with some lenders who offer the program and perusing various lender guidelines, I am duly confused.

According to the representative from Fannie Mae, the program generally should work like this:

An applicant determines if a loan is owned by Fannie Mae by going to the Web site, https://loanlookup.fannie mae.com.

If so, the applicant can apply for a loan through any participating lender or broker.

The lender or broker takes the necessary information and submits the application to Fannie Mae’s “automated underwriting” system. Apparently, this system will find the application to be either eligible or ineligible for the refinance.

After this conversation, I became pretty optimistic. The biggest concern I had was simple: Lenders making these loans will be fearful that Fannie Mae will find a reason not to purchase the closed loans, leaving them holding mortgage paper that carries a higher risk because of the lack of equity.

The Fannie Mae representative told me the automated underwriting system will determine the eligibility of the application and therefore eliminate the risk of the lender not being able to sell the loan.

This sounded great. I then spoke with a couple of different lenders who had recently unveiled this program.

The first lender told me that while they are offering the so-called HARP program, which is supposed to allow financing of up to 105 percent of the current value, they are limiting these loans to homeowners who have 20 percent or more equity in the home. It seems this lender is worried that Fannie Mae will not purchase these loans.

The second lender told me a different story. The representative largely confirmed the procedures and guidelines of the HARP that were described by the Fannie Mae representative.

Do I have a conclusion? No, but I remain cautiously optimistic. If the HARP program is truly implemented as described by Fannie Mae, it will reward responsible borrowers who bought at the peak of a real estate cycle. I’ll keep you posted.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail at [email protected]

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