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HARP's Dirty Little Secret: Most HARP Refis are of Positive Equity Mortgages

posted by Adam Levitin

So the Administration has announced that it is expanding the HARP refinancing program to help underwater borrowers.  Originally, HARP enabled borrowers with up to 125% loan-to-value (LTV) ratios to refinance (105% for adjustable rate loans).  The revised program removes the LTV cap for fixed-rate loans, reduces some refi fees, permits refis of loans that have been mildly delinquent recently, and extends the eligibility date.  All the news accounts have stated that the number of HARP refinancings is expected to roughly double, from about 900,000 refinancings to perhaps 1.8 million refinancings. This is trumpeted as a boon for underwater homeowners.  

The revised program may well help some underwater homeowners lower their monthly payments. Unfortunately, the 900,000 and 1.8 million numbers are seriously deceptive.  Most of the HARP refinancings to date have been for borrowers with positive equity.  HARP has refinanced very few underwater borrowers.  As of 2Q 201192% of HARP refinancings (776,009 of 838,441) were of loans between 80% LTV and 105% LTV. Only 62,432 refis were between 105% and 125% LTV.  In other words, HARP has provided very little help for underwater borrowers.

(It's not clear to me what makes a refi of a <100% LTV loan a HARP refi in the first place--it's defined by FHFA as a "Fannie Mae to Fannie Mae and Freddie Mac to Freddie Mac first lien refinance loans with limited and no cash out that are owner occupied with LTV's over 80 to 125." That means that an 80% Fannie to Fannie no cash out refi is counted as HARP, but that just looks like a regular refi to me.  But that's another story.)

Recognizing that HARP hasn't helped very many underwater homeowners to date makes me skeptical that an increase in the HARP LTV limit will make a difference.  If you can't get the 120% LTV homeowner to refi, what will get the 140% LTV homeowner in the door?  (Indeed, since the 140% LTV mortgage isn't REMIC eligible, making the refinacing less attractive from the GSE end).

Recognizing that HARP hasn't helped very many underwater homeonwers also underscores a critical problem with the program:  it's not a foreclosure prevention program.  HARP refi recipients generally aren't avoiding foreclosure via because of HARP.  If there's a job loss, a 4% mortgage is going to be hard to carry, just like a 6% mortgage. Instead, what's going on here is stimulus via subsidy.  These homeowners are getting a new mortgage at a very low rate, subsidized ultimately by the taxpayer.

That might be great as a stimulus move, but I worry that it will set an expectation for homeowners going forward of 4% mortgages and that such an expectation will constraint the restructuring of the US housing finance system. What's worse is that it's a bailout of the wrong homeowners--HARP is directing help not to the homeowners most in need, but to those who are likely to hang on.  If we're going to bail out homeowners, let's at least target the right ones.  

 

Comments

HAMP'S Dirty Little Secret: (Thats HAMP in addition to HARP!)

Posted on 4closurefraud.org Nov 27 2010 (Just over 1 year ago. Similar posts to Propublica and NY Times, repeatedly.)

http://4closurefraud.org/2010/11/26/citimortgage-family-w-autistic-daughter-father-with-alzheimers-homeless-despite-making-payments/

JS says:

November 27, 2010 at 7:38 AM

This is one of the “dirty little secrets” of HAMP. The FDIC HAMP Guidelines, state on page 3, that the process will,

“Mandate that the cost of the modification must be less than the estimated foreclosure loss.”

[http://www.fdic.gov/consumers/loans/loanmod/FDICLoanMod.pdf]

This means that homeowners who have substantial equity in their our homes are categorically denied a modification and forced to foreclosure!

Furthermore, the Attorney’s General are supporting this apparent flaw. Iowa Attorney General Tom Miller, stated the following in his testimony to the Committee on Banking, Housing, and Urban Affairs, on November 16, 2010:

“To be clear, the States do not believe that every foreclosure is a tragedy that must be avoided. To the contrary, we have consistently stated over the last three years that we are only interested in modifications where the cash flow from the modification exceeds the expected proceeds from a foreclosure sale.”

This certainly seems counterproductive, as those most vested in their homes are categorically denied modifications. It is also an indication that the HAMP program’s very intent is to help Mortgage investors, not homeowners. Helping some homeowners is just a coincidental benefit of the program, that is being falsely hyped by the government and the banks as an act of good will.

If a homeowner has equity, the banks know, up front, that they will ultimately reject the modification, but start a trial mod anyway, so they can squeeze out a few more bucks in trail payments, penalties, and fees, before kicking them to the curb. It is completely heartless.

This is America?

This is a function of policy makers not having discussions with the guys on the street that actually have to implement these programs.

Hardly any banks were willing to do the higher LTV deals because the reps and warrants weren't changed to take them off the hook in the event of a default. Harp 2.0 is supposed to have amended the reps and warrants so mortgage originators can make the higher LTV loans without repurcussion in the event of a default.

As a result, most of the HARP loans were for borrowers who actually had equity remaining.

This wasn't rocket science and they could have asked any Loan Officer/mortgage broker on the street that no one was benefiting from it like two years ago.


Is there a lawyer in the house?

Please correct me if I’m wrong…

HARP 2.0 only does 3 things, and none of them have anything to do with economic stimulus or job creation:

1. HARP 2.0 gives elected representatives opportunity for dubiously spinning re-election campaign rhetoric;

2. HARP 2.0 transforms pre-conservatorship GSE loans into federally-guaranteed loans (ditto re. all the – insert descriptive Carl Levin expletive – mortgages that the Fed is buying-up from big-bank private labels right now), and so thereby…

a. makes them newly marketable as bundled into the TBA (Columbia University-promoted) secondary market vehicle (covered bonds structured by close associates), and;

b. thanks to recent rule-making by the FHFA expanding authority for federal debt collection (sshhsh, don’t tell anyone!), also deliberately suckers the refinancing borrower into assuming the same position as a federally-guaranteed student loan defaulter when (not if) he eventually defaults. To be blunt, he will suddenly find himself “unforgivable” in all circumstances – subject even to US Secretary of the Treasury off-set against “entitlement” payments otherwise due him (Surprise, we’re shorting your wages – or your tax refund – or your social security payments – or anything else we feel like taking – to cover your lender!) AND;

c. makes the refinancing borrower, and all his fellow suckers, perfect fodder for eternal enslavement because he automatically becomes part of the mega-billion dollar pool of mortgages that our federal government will eventually sell off (as guaranteed by American taxpayers) to secretive NYC and Caribbean island-based Vulture Funds. (Those cockroaches will have a federal ‘green light’ to hound all the poor suckers to death for 100 percent of the unpaid mortgage principle – JUST LIKE WHAT IS HAPPENING TO ICELANDIC HOMEOWNERS RIGHT NOW: http://www.nakedcapitalism.com/2011/11/iceland%E2%80%99s-new-bank-disaster.html – see Naked Capitalism)

3. Finally, lest we not forget – HARP 2.0 also forgives absolutely the (bailed-out and ungrateful) lender his fraudulent underlying origination – meaning that the suckers who refinance via HARP 2.0 will never have any recourse concerning their original fraudulently-induced and securitized (insert any other of Levin’s descriptive expletives) mortgage debt.

So – if I’m right about all this – or even just part of it – when are all the good-faith lawyers going to warn us about what’s going on before it’s too late?

Or, like Barney Frank who recently explained it away to Judy Woodruff on his way out the door – Do you think it’s too complicated for us to understand?

Step up boys and girls. Please; there’s more at stake here than just a couple of million poor suckers.

The primary advantage of HARP is simple: you're allowed to stay in your property at a new, lower monthly payment. You do not receive any financial or credit penalties in the course of refinancing.

Adam, many jumbo loans are not fred/fan backed,
even folks with positive equity, prime credit, jobs
are not able to take advantage of low interest rates
especially in high cost areas like california,

Why would a bank not sell a mortgage to fannie or freddie even though conforming loan limits changed.

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