HARP Extended One More Year
The Federal Home Finance Administration (FHFA) recently announced that it is extending HARP, the Home Affordable Refinancing Program until September 30, 2017. The program, which was set to expire at the end of 2016, has been effect for over 7 years and was created to help borrowers with no equity or negative equity in their homes and who could not afford to make monthly payments, refinance at affordable rates and write off or re-amortize debt so as to create an affordable monthly payment. This allowed millions of homeowners to keep their homes during the mortgage crisis. To date, over 3.4 million homeowners have refinanced using HARP.
To qualify for a HARP loan, the loan being refinanced must have been originated before May 31, 2009 and must be insured or originated by Fannie Mae or Freddie Mac. The new LTV must be 80% or higher. The borrower can have no late payments on its existing loan during the 6 months preceding the loan closing and no more than 1 late payment during the 12 months preceding the loan closing. A borrower must have a source of income and must benefit from a HARP refinancing by either the reduced principal and interest payment, the lower interest rate, the shortened amortization term or the better mortgage product.
FHFA is extending HARP as a bridge until its new “streamlined” higher LTV programs go on-line in October of 2017. The LTV will be as high as 95% in these new programs and there will be no minimum credit score or maximum debt to income requirements and no appraisal requirements. After the housing and foreclosure crisis, it would seem that FHFA and banks would be much more weary about these types of loans. The lack of verification of borrowers’ ability to pay looks a lot like the “no doc” loans that led to the bursting of the bubble in 2009. If these streamlined loans gain popularity, could another crisis be far behind?
Extension of HARP is a good idea, but lenders need to be careful about streamlining the approval and verification process going forward. Lower down payment loans are also a good thing. A borrower’s lack of ability to save is not necessarily an indication of an inability to pay. However, good underwriting is and should always be a given.