PHOENIX - Each Sunday, ABC15.com debuts an Arizona issue - along with two opposing sides on the topic.
Don’t worry, you always have the opportunity to make comments at the bottom of the page. Yeah, your opinion matters, too.
This week we’re tackling the debate on whether or not the Home Affordable Refinance Program, or HARP 2.0, is helpful for homeowners or if it's just political hype.
Mark Stapp, director of Arizona State University Masters of Real Estate Development, says HARP 2.0 will likely have little impact across the nation and very little or no impact in the Phoenix metro area.
Jay Luber, president of Galaxy Lending Group, says HARP2.0 has indeed helped many consumers in need of mortgage relief.
Click “next page” to read the first of two positions, “The program helps with mortgage relief ”.
“The program helps with mortgage relief”: By Jay Luber, president of Galaxy Lending Group, LLC
Valley homeowners that owe more than their house is worth have been clamoring to see if they qualify for the newly expanded Home Affordable Refinancing Plan (HARP2.0) since its release on March 19, 2012.
Both HARP and HARP2.0 are designed for borrowers with conventional loans purchased by Fannie Mae or Freddie Mac prior to June 1, 2009 and serviced by major banks or other institutions to which they make loan payments. With looser parameters than the original program, HARP2.0 allows many more homeowners to participate. Homeowners that qualify can cost-effectively refinance at today’s low interest rates to lower their monthly mortgage payments.
The initial HARP program had a primary drawback; there was a cap of 125% on a home’s loan-to-value, a ratio comprised of what one owes over present market value. High program fees also undercut the actual savings homeowners received and reduced the number of homeowners that could actually benefit.
The major hype surrounding HARP 2.0 is the removal of the 125% loan-to-value limit that previously disqualified many homeowners. In addition, a new and improved fee structure with limits delivers increased homeowner savings.
Over the past month, Galaxy Lending Group has consulted several hundred borrowers and we have helped many folks to take advantage of HARP2.0. In the process, we have uncovered some pitfalls that diminish this program’s real potential and restrict homeowner engagement.
The Departments of Treasury and Housing & Urban Development jointly created HARP. Although elements of the enhanced plan offer great potential, clear and consistent execution is lacking. Unfortunately, the major financial institutions servicing the loans are not implementing the program as written…. and they have no program mandate to do so.
As a mortgage broker, my company has established business relationships with key financial institutions. We have found that only a few of the smaller mortgage banks are following HARP2.0 as it was intended. Virtually all of the large, major banks have incorporated what are called “overlays” or guidelines that supersede those of the program.
Some bank overlays include:
- Limiting loan-to-value to a specific amount such as 150% (the program has no defined limit).
- Allowing borrowers to refinance only if their bank is currently servicing the loan.
- Not allowing borrowers with a specific type of mortgage insurance (MI) to refinance.
HARP2.0 has indeed helped many consumers in need of mortgage relief. However, the total number of program beneficiaries will prove in the long run substantially less than projected. It was my hope that this program would allow borrowers to shop in an open market for the best refinance rate. Instead, bank overlays have eliminated this opportunity and everyone is playing by different rules.
The few banks actively implementing the program simply cannot serve such a high demand of applicants. Since capacity will inevitably become an issue, they will likely either take a hiatus from accepting new applications, raise rates to discourage new applications or withdraw from offering the program in its present form. Without large financial institutions participating, HARP2.0 can’t possibly live up to the hype.
For those homeowners that meet the criteria of HARP2.0, I urge you to contact a mortgage lender to discuss your loan and HARP2.0. While the pipeline is great, the funnel is small.
Do you agree with this opinion? Add a comment below to sound off.
Click “next page” to read the second position, “ The program will likely have little impact ”.
“The program will likely have little impact”: By Mark Stapp, director of Arizona State University Masters of Real Estate Development
HARP 2.0, like most of the other programs launched to help underwater homeowners and those at risk of foreclosure, will likely have little impact across the nation and very little or no impact in the Phoenix metro area. Programs like HARP have proven difficult to implement for several reasons. One reason they fail is loan servicing system is not designed to execute workout programs on a large scale. The system is designed to efficiently and quickly originate loans and simply service them. The system worked great for expansion (loan origination) but failed when contraction occurred. When a borrower defaults, the system moves to a very precise process defined by law – the foreclosure process. Loan servicers are trained to follow this process to protect lenders rights (and servicers get paid to implement foreclosure process whereas they are not paid to create a loan modification). The system does not do well sorting out peoples stories. The problem is made more difficult when trying to determine how to assess helping someone “underwater” but not in default.
Each default is the symptom of a person’s story, their life. There are many, many stories and that is what is most difficult. The system doesn’t care that you lost your job, had a medical emergency or some other problem that caused a cash flow problem. What may have been a very affordable and reasonable mortgage payment suddenly becomes unaffordable. The system doesn’t care and as a result it is very challenging to petition the aspects in each case, have them accepted and come to a modification plan.
It requires going beyond the legal process and basic numbers. If there are a few million people who need help, then there are a few million stories and the system just can’t handle them. There is disconnect between the loan originator, loan servicer and investor which exacerbates this problem. Lenders baulk at helping because they worry about moral hazard. Much discussion has occurred around the idea of moral hazard – creating an incentive for those not in trouble, to default and seek a modification. This need not be a problem – there are time tested criteria for establishing an affordable loan payment –28% of your gross income. This is easy to verify and could be the basis to determine if a loan mod is warranted regardless if the house is “underwater”.
Another issue with the recent settlements the Federal government reached with the big banks is the settlement really doesn’t help those already harmed. It’s analogous to a class action settlement that only pays those who may be hurt in the future. Why help people already harmed, when you can’t really determine if they should have been foreclosed on, or if they had a story that made it impossible to make payments?
We are in this mess for several reasons including predatory lending, borrowers who should not have taken out loans (but lenders gave the anyway), and people who simply lost their jobs and couldn’t pay their mortgage. There is culpability all around –lenders and borrowers - but the burden of solving the problem is not shared equally.
I’ll conclude with an idea - what if we took that settlement money and created a pool for lending to those who lost their homes because of financial hardship and allowed them to borrow again to buy homes, avoid the issues banks and loan guarantee organizations (FHA, VA, Fannie/Freddie) impose as a result of foreclosure and bankruptcy? Some people are forced to wait as many as seven years, or four years if they went bankrupt. Wouldn’t this get people back buying again and not just leave the low priced homes available to the investors?
Do you agree with this opinion? Add a comment below to sound off.
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