FHFA Announces Expansion of Program for Underwater Homeowners

In advance of a speech in Nevada laterrntoday in which President Obama is expected to expand on the initiative, thernFederal Housing Finance Agency (FHFA) has announced major changes to the HomernAffordable Refinance Program (HARP).  FHFArnunveiled what is essentially a widening of HARP to reach more borrowers in anotherrneffort to reverse the continuing flood of delinquent mortgages heading down thernpipeline to foreclosure.</p

HARP is unique among programs designedrnto assist distressed borrowers in that it is intended to help those who arerncurrent on their mortgages but underwater, that is who owe more on theirrnmortgages than the current market value of their homes.  Several studies have identified thesernborrowers as being likely to strategically default on or walk away from theirrnmortgages.   Although Fannie Mae and Freddie Mac, the two governmentrnsponsored enterprises (GSEs) which are under FHFA conservatorship, havernassisted about 9 million homeowners to refinance into lower-cost mortgages overrnthe last few years, only about 10 percent of those were aided throughrnHARP.  HARP, like the other majorrngovernment foreclosure prevention initiative HAMP, the Home AffordablernModification Program, has been impeded by a lack of enthusiasm among lendersrnand servicers integral to the programs’ success.  In the case of HARP, the lenders objected tornthe possibility they might have to buy back delinquent loans if they weren’trnscrupulously underwritten.  They thusrntended to cherry pick the best loans which in turn limited borrowers fromrnrefinancing with other than their current lenders.  </p

The current HARP limits thernloan-to-value (LTV) ratio for a new loan to 125 percent (the program originallyrnhad a limit of 105 percent).  Thisrneffectively eliminates the most underwater homeowners and even leaves whole states,rnsuch as Nevada where large percentages of homeowners have negative equity abovernthat amount, out of the program. </p

While regulations and guidance for thernplan won’t be finalized for several weeks, relevant changes to HARP that werernannounced today include:</p<ul class="unIndentedList"<liRemovingrnthe current 125 percent loan-to-value ceiling on refinanced mortgages;</li<liWaivingrnrisk-based fees on borrowers who take shorter term mortgages and reducing thosernfees for others;</li<liEliminatingrnthe need for a new property appraisal where there is a reliable AVM (automatedrnvaluation model) estimate provided by the GSEs; </li<liEliminatingrncertain representations and warranties required of lenders to obtain the GSErnguarantee. This will protect lendersrnfrom many of the buy-back requirements they face under current guidelines.</li<liExtendingrnavailability of the program through the end of 2013.</li</ul

FHFArnsaid the changes to HARP were made with input from lenders, mortgage insurers,rnand other industry participants.  Accordingrnto The Wall Street Journal, among thernconcessions made by the industry are agreements from private mortgage insurersrnto facilitate the transfer of existing mortgage insurance coverage and fromrnmost of the major lenders to ease the process of subordinating existing secondrnmortgages to the new loans.    </p

Thernchanges in the program may double the number of borrowers using HARP accordingrnto some estimates, but still will serve only those borrowers who are current inrntheir loans and who have loans owned or guaranteed by one of the GSE’s thatrnwere delivered to Fannie or Freddie prior to July 2009.  Thus it will impact only a small percentagernof distressed borrowers in the country.</p

 “We know that there are many homeowners whornare eligible to refinance under HARP and those are the borrowers we want tornreach,” said FHFA Acting Director Edward J. DeMarco. “Building on thernindustry’s experience with HARP over the last two years, we have identifiedrnseveral changes that will make the program accessible to more borrowers withrnmortgages owned or guaranteed by the Enterprises. Our goal in pursuing thesernchanges is to create refinancing opportunities for these borrowers, whilernreducing risk for Fannie Mae and Freddie Mac and bringing a measure ofrnstability to housing markets.” </p

Charles E. “Ed” Haldeman,rnJr., Chief Executive Officer of Freddie Mac released the following statement onrnthe program.  “This new phase of thernHome Affordable Refinance Program (HARP) will help reach more borrowers withrnnegative equity so they can refinance into new Freddie Mac mortgages at today’srnhistorically low-rates. These changes mark another step on the road to recoveryrnfor the nation’s housing market and underscore Freddie Mac’s vital role inrnmaking affordable mortgage financing available to America’s homeowners andrnfuture homebuyers.” </p

Video: Refinancing Overhaul for Homeowners

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