If at first you don’t succeed in helping underwater homeowners … create HARP II.
In an attempt to help the millions of homeowners who are underwater on their mortgages, the government recently announced changes to HARP, the Home Affordable Refinance Program (aka the Making Home Affordable Program).
Why the changes? The 2009 HARP program was a huge disappointment. Positioned to assist more than 9 million U.S. households – HARP has helped less than a million homeowners in the past three years. To give you just one example: over 60% of homeowners who sought help through HARP in California failed to get it and slipped into foreclosure according to one survey.
Today the housing market continues to deteriorate across the country and more than one in five homeowners are underwater on their mortgages. Even here in the Northern Virginia/DC market, which has had the top value gain in the country during the past year, more than 25% of homeowners are underwater. According to one estimate that’s over 280,000 homes that would be short sales if they sold this year.
Hoping to eliminate problems with the original plan and to allow many more troubled homeowners to refinance at today’s historically low interest rates, the Obama administration brings us HARP II.
So is HARP II better? In an October 24 article in the Washington Post, Government announces new program to help ‘underwater’ homeowners, Zachary A. Goldfarb and Scott Wilson define the biggest problems of HARP I: borrowers who owed more than 125% of the value of their house were excluded; high upfront fees made refinancing impossible for many, and ‘banks were concerned that they might be held financial responsible if borrowers who refinance end up defaulting.’
To address these problems HARP II eliminates the LTV requirement – so there’s no cap on how much a borrower can owe; reduces fees and ensures that banks that refinance will be largely cleared of liability.
The hope is that these adjustments to the program will help one million underwater homeowners to stay in their homes. That would reduce foreclosures, help stabilize home prices, and free up cash for consumers to spend, thus benefiting communities all across the country. Hopefully this time they got it right!
For an in-depth look at all the ins and outs of HARP II we suggest Dan Green’s November 22 blog on The Mortgage Reports. http://themortgagereports.com/259/harp-making-home-affordable-guidelines.)