Who wins, who loses with HARP 2.0?by Tim Manni
There was great deal of fanfare back in February 2009 when President Obama announced his three-pronged attack on the sinking housing market and homeowners it was taking down with it. He stood in front of a crowd in Mesa, Arizona and said, “We will make it possible for an estimated four to five million currently ineligible homeowners who receive their mortgages through Fannie Mae or Freddie Mac to refinance their mortgages at lower rates.”
Over two years later and only about 900,000 homeowners have been so fortunate.
Last month, the president, in a repeat performance of sorts, stood in front of a crowd in Las Vegas and announced an expansion to the HARP program–a refinance effort targeting homeowners no matter how far underwater they are.
The point is this: Despite the near repeat performance in the announcement of the two similar-but-different programs, there are some substantial changes from HARP 2009 to HARP 2011 that define some potential winners and losers.
HARP’s two notable changes
Loan officer and HSH.com contributing writer Dan Green broke down two notable changes to HARP 2.0 as well as the potential impact the expanded program will have on the economy.
Green explained that the two biggest changes (the two most definite at this point), are the elimination of the loan-to-value (LTV) ratio limits and the elimination of certain “representations and warranties” for mortgage lenders.
While HARP 2009 dictated that a borrower’s LTV couldn’t exceed 125 percent, HARP 2.0 states that a homeowner is still eligible no matter how far underwater they are. “That means the program is now in reach for homeowners in states such as Nevada, Michigan and Arizona where LTVs can exceed 200 percent.”
The elimination of certain representations and warranties for HARP-participating lenders is another big change. “‘Reps and warranties’ is an esoteric mortgage term to most homeowners,” writes Green, “but to lenders, it’s a big deal.”
“Reps and warranties define lender obligations when a loan goes bad. The new HARP guidelines shift responsibility from the banks to the government. With less liability for the ‘bad loans’ they make, a greater number of banks will now participate in HARP, giving homeowners more choices which will bring, in theory, lower rates.”
Winners and losers
Washington hasn’t released the full details of HARP 2.0 (not until Nov. 15), so the definitive impact has yet to be seen. Yet, the fact of the matter is, the new rules open the door to millions more homeowners.
CoreLogic, an analytics and research firm, has put together a list of potential winners and losers under HARP 2.0.
Fannie and Freddie: Refinancing loans to lower rates will help reduce the risk of default for the GSE-backed loans, said CoreLogic. “This should reduce future mortgage delinquency risk on the refinanced loans.”
Mortgage originators: While many are concerned that mortgage servicers aren’t prepared for the influx of activity HARP 2.0 will generate, CoreLogic estimates that a 15 percent boost in activity will take place next year, accounting for two million additional transactions through 2013.
Distressed borrowers and shadow inventory: CoreLogic believes that HARP 2.0 won’t target two key facets that continue to place tremendous strain on the housing market: distressed borrowers and shadow inventory.
HARP is designed to target borrowers who are current on their mortgages, not homeowners who have already fallen behind. “HARP2.0 will not reduce the level of the shadow inventory, which, by definition, is composed of seriously delinquent loans and REO held off the market,” said CoreLogic.
Come Nov. 15, it will be interesting to read the HARP 2.0 details in full to get a sense of who all can qualify. Things are going to get a little crazy over the next few months as millions of underwater homeowners are going to attempt to refinance their mortgages. The questions in my mind are, how prepared will servicers be, and given the changes, will more lenders choose to participate?
We’ll have to wait and see.