Why We Need HARP 3.0

*Why We Need HARP 3.0*
**By George Yacik**

NEW-GeorgeY***Dear President Obama and Members of Congress: Please set aside your political differences for a little while and pass legislation to enact HARP 3.0. Soon.

****There are still millions of homeowners who are current on their mortgages and underwater on their loans but have been unable to take advantage of the first two versions of the Home Affordable Refinance Program and refinance into a low rate mortgage.

****They had the misfortune of getting their current mortgage from a lender who didn’t sell it to Fannie Mae or Freddie Mac, and now they’re stuck with it. Or they’re ineligible for some other reason, sometimes trivial. Like me.

****Full disclosure: This column is at least partially self-serving. I got my current mortgage loan when I bought my home in late 2006 from a large thrift that later went bust. A large commercial bank subsequently bought its servicing portfolio.

****The loan is owned by one of the GSEs – or at least my servicer tells me it is. Both of the GSEs say they don’t own the loan.  (If that’s the case, where has my servicer been sending all that money to the past seven years? That’s a subject for another column).

****I can’t refinance through HARP 2.0 now because apparently I had “refinanced” back in early 2007 when my wife and I sold another home and used the proceeds to buy down the interest rate by a half percentage point.

****I didn’t know it at the time, but that minor technicality is now preventing me from taking advantage of HARP 2.0. I’m stuck with an interest rate that is at least two full percentage points over current market rates.

****I can’t do a conventional refi because I’m underwater on my home. Even if I could find a lender willing to do a 100% LTV loan, I’d have to pay mortgage insurance, which would wipe out any savings by doing the refi.

****Did I mention I’ve never missed or been late with a payment in my life?

****I don’t know how common my situation is, but I do know that there are millions of people who can’t take advantage of HARP now because they got their current loan from a subprime or Alt-A lender, not one that either Fannie or Freddie bought.

****At least 20% of mortgages, if not a lot more, that were originated in the pre-bubble years are not owned by Fannie or Freddie, one lender told me.

****Of course, the biggest objection to a HARP 3.0, unlike the previous two versions, is that it means shifting the risk on these loans from the private sector to the GSEs – i.e., the taxpayers.

****But how risky are these people to begin with? If they’ve managed to pay their above-market-rate mortgage for the past several years of a lousy economy and record unemployment and never been late, the additional risk to the government agencies will be minimal.

****If these people can refinance into a loan that can save them several hundreds of dollars a month, they’ll be even less likely to default.

****Any additional risk, if there is any, will be more than compensated for by the extra money flowing into the economy as these people get the equivalent of a big tax refund.

****It’s also an issue of fairness. Why are we being prevented from taking advantage of a government program open to other financially responsible homeowners just because of a minor technicality or because we got a loan years ago from a lender now in disrepute?

****It’s nice that the Federal Reserve has lowered interest rates to record low levels, enabling millions of homeowners to refinance at rates so low they’ll likely never refi again. But it can’t force lenders – or Fannie and Freddie – to change their underwriting guidelines.

****But HARP 3.0 would, and it won’t cost the government a dime.

****Passing HARP 3.0 would also give a much needed boost to a mortgage industry desperate for new loan volume. One lender told me he could double the number of HARP refis he does now if the program were opened up to people whose loans aren’t owned by Fannie or Freddie.

****With refis expected to tail off sharply over the next several years, HARP 3.0 would help keep the refi “boomlet” running at least a little longer, providing additional stimulus to an economy and an industry still in need of some.

George Yacik has been a financial writer for more than 30 years. After working 12 years at The Bond Buyer and American Banker as a reporter and editor, he joined SMR Research Corp. as a vice president, where he was the lead research analyst and project leader for SMR's studies on residential mortgages and home equity lending. Since 2008 he has been writing for a variety of mortgage-related and financial publications. George is based in Stratford, CT, and can be reached at gyacik@yahoo.com.