HARP 2: Will Revised Underwater Refi Program Help Economy?
Hype from Monday’s HARP 2.0 announcement about making it easier for underwater homeowners to refinance is that it will help the economy and the housing market.
It will definitely help a lot of borrowers, but will it help the broader economy? Below is a roundup of views from this week.
HARP 2 is a good step, but in a conference call from Credit Suisse, analysts pointed out “this is not a game changer” to housing or the economy. They estimate 720k borrowers will be able to refinance which translates to between $2 and $3 billion in interest savings; so not much impact to the economy or housing. But many investors are focused on HARP 2.0’s reps and warrants information. The biggest surprise may have been that Fannie and Freddie will waive their rights to demand refunds from lenders after flawed loan underwriting in many cases. FHFA Acting Director Edward DeMarco told reporters the companies would offer “substantial” relief from buyback demands when HARP is used without providing “blanket or absolute” waivers, except for fraud. Fannie Mae and Freddie Mac also will remove ceilings on the permitted difference between loan amounts and property values and reduce or eliminate certain upfront fees charged for weaker credits, the FHFA said. The mortgage-finance companies will also nix appraisals in more instances and require on-time payments only over the prior six months, rather than as long as one year.
Jeff B. from the STRATMOR Group observed, “In view of the President’s announcement today about refinancing underwater mortgages owned by the GSE’s, this will reportedly enable about 1,000,000 homeowners to refinance their homes. If we assume an average loan balance of $200,000, this means a potential origination volume lift of about $200 billion in production. Given the MBA forecast of $900 billion, this program would represent about a 22% potential increase in national volume. And this program still leaves another 10 million underwater homeowners. Maybe it’s the start of something more optimistic than we have been hearing?” (Mr. Babcock’s statement refers to an MBA release, repeated a few paragraphs down.)
The CEO of Townstone Financial of Chicago wrote, “Any improvement in HARP is good news, since our economy is in quicksand and being weighed down by housing. It will be interesting to see which banks accept loans under the new HARP, since the minority currently go to 125% LTV, and perhaps major MBS investors insisted on the May 2009 cutoff. It would have made more sense for Freddie and Fannie to go back up to 10 mortgages per individual so that the investors could cleanup some of the inventory and place a floor under the market. Is this really the best program that the administration could come up with?”
Another noted, “Officials keep prolonging the HARP program from 2011 to 2012, and now to some time in 2013, but prolonging the length of the program isn’t the problem. This program should be giving all people the chance to refinance, or at least moving the date that Fannie or Freddie purchased the loan from 5/31/2009 to 5/31/2010. Nothing changed as far as I am really concerned. People who had their loan purchased by Fannie or Freddie before this date still can’t do anything and people who have state program-based loans (through various Housing Development Authorities, for example) can’t do anything either. Is this just another smoke screen to get individuals to believe that they are truly trying to help the housing market?”
FHFA will provide lenders with more details and guidance on November 15, so that’s when we’ll be able to better determine overall effectiveness.
Consumer Effective Date of HARP 2
And consumers should note that lenders will need time to implement all that new guidance, so program availability will come early December and rollout will be per lender—as fast as each lender can get all the guidelines implemented. More to come on this.
–I’m Underwater: Do I Qualify For The New HARP Refi?
–Let’s Do HARP Correctly