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Posted almost 12 years ago

Changes to the HARP Program and What They Could Mean for You

Recently Fannie Mae and Freddie Mac made major changes to the rules on short sales. I'm almost positive it won't do much to change the number of foreclosures we'll see coming.

In previous blogs I have talked about some of the major problems with President Obama’s Housing Affordable Mortgage Program, HAMP. Last year, through executive order, the president announced some huge changes to the government’s Home Affordable Refinance Program (HARP). The new changes in short sale rules are a lot like the HARP changes (that didn't work). Here's what happened with HARP.


The new rules will allow some homeowners who are not currently eligible under the old HARP rules to refinance their mortgage. The changes cut fees for borrowers who want to refinance into short-term mortgages and some other borrowers. The new rules eliminate a cap that prevented “underwater” borrowers who owe more than 125 percent of what their property is worth from accessing the program.


HARP has been a giant failure up to this point.


When it was created, the government set a goal of helping 5 million struggling homeowners refinance their mortgages and get better rates. Right now, the Chicago Tribune is reporting that only 70,000 people have been able to refinance, while Bloomberg news is reporting that 895,000 loans have gotten refinanced through the program. That’s a success rate of around 1.5 percent or 18 percent, which is still bad, but still better than HAMP’s success rate of 1 percent to 10 percent (depending on whose numbers you believe).


Now, even though both HARP and HAMP fell well below expectations and only helped a tiny percentage of the homeowners who were underwater on their mortgages, the program did lead to seven-figure paydays for some top executives at Fannie Mae and Freddie Mac.


The FHFA approved $12.79 million in bonus pay after 10 executives from the two government-sponsored corporations last year met the so-called performance targets tied to modifying mortgages in jeopardy of foreclosure.


For the people that do qualify for the HARP refinancing the program will definitely help. The program will allow homeowners to refinance their loans at current market rates, which are currently at or below 5 percent. HARP will also now encourage homeowners who are underwater to refinance into short-term 15- and 20-year fixed-rate mortgages by waiving most or all program fees for those loans. The program will not actually reduce the principal amount the buyer owes, but it will reduce interest payments by a lot.


According to numbers from the Department of Housing and Urban Development, it will mean a lot. Homeowners can save an average of $2,500 a year on their mortgage payments, according to Shaun Donovan, Secretary of the Department of Housing and Urban Development.


Personally, I’m skeptical. I don’t think it will work. Obama removed most, if not all of the fees for brokers, so there’s absolutely no incentive to push it.  It’s actually another sweetheart deal for banks and lenders because it allows them to refinance bad assets with government money with no risk to themselves.  I'll bet when we get into it, this deal won’t help too many homeowners.


To make it work, the government and President Obama needs to change the program so that anyone 25 percent underwater and can prove their income is able to refinance at 2 percent interest for at least five years, and then lock in the interest rate at five percent for the next 25 years.  Also, instead of giving subsidies to the bank, give yield spread premiums to brokers. That would start a wildfire of refinances.



Real Estate Mike is host of the syndicated radio show, “Let’s Talk Real Estate with Mike Andrews.” He is a published author, real estate expert, entrepreneur and investment advisor. Follow him on Twitter Twitter.com/RealEstateMikeA.


Comments (1)

  1. I think this is a great program. Only problem is people don't look at getting help until they are behind on payments and don't realize this program exists. This is great for investors who have underwater homes and are upside down in cashflow every month. If they have a Fannie and Freddie loan they may qualify.