HARP 2.0 Is a Bust

Did that get your attention?   It should.   Let me say this before we go into this topic- I hope I am wrong.  For the sake of millions of borrowers nationwide who deserve a better interest rate, I hope I am just jumping to conclusions.  The HARP 2.0 program was announced in November of 2011 and does not start until next month.  The goal was to enable homeowners who are current on their payment but underwater on their mortgage the opportunity to take advantage of historic low rates.  There are, however, some disturbing signs that this latest effort to help homeowners will be a bust even before it even gets going.   Here are some of the reasons why this is possible:

• The Administration is already distancing themselves.   In a speech last week, President Obama called on Congress to help homeowners who were underwater on their homes.   His proposal has already come to be known as Harp 3.0.   So the question is this- if HARP 2.0 is a success, why introduce HARP 3.0?   HARP 2.0 appeared to be a very good attempt at helping homeowners.   It addressed the shortfalls of the original HARP program and other attempts that had previously failed.   On paper it should have been a home run.   So why is the President saying this? “I’ll be honest — the programs that we put forward haven’t worked at the scale that we hoped.”   Without taking political sides, the President took a huge risk in putting forth this program.   Millions of American’s finally thought they were going to be able to refinance.   If the program is a failure, many will hold the President accountable.  In my opinion, he realizes that and is trying to get ahead of the situation.
• Rate savings just not there.   Again, the HARP 2.0 program is not even out but already there are indications that the failure is going to come in the form of interest rates on the new programs.  When the program was annouced, the guidelines stated that everyone who was current on their mortgage and had a loan owned by Fannie Mae or Freddie Mac would be eligible no matter how much they owed on the property.  That is the key word – eligible.  All of these borrowers are eligible.   The problem is that the rate on the new loan will still be based on a combination of loan-to-value, credit score and other factors.   In short, the rate on these new loans may not be much lower than the rates these borrowers currently have.  That means little to no payment savings each month.  As part of that, while no traditional appraisal is required, an automated value method will be used and the value obtained will be used to price the loan.
• Lenders and Investors still might not be ready.  Currently, we are awaiting a March 17, 2012 rollout of changes to Fannie and Freddie’s automated underwriting system.   Many believe that to be the date that we will start being able to process and close these loans.   But there are many indications that, even, we won’t be ready to go.  For one thing, we still have no idea how to deal with loans that currently have “private mortgage insurance” (PMI).   This is just one of many questions that remain unanswered.

I was very hopeful when I heard about HARP.   And I still hold out some hope that it will work.   At the very least, the indication is that it simply won’t be as good or as helpful as we hoped.   Rates remained steady this week and are expected to continue at or near record lows for the coming months.