Throwing Out a Lifeline

There’s Still Time for Homeowners to Take Advantage of HARP

Mel Watt has been on a campaign.

Watt, director of the Federal Housing Finance Agency, has been reaching out to the public all summer to let people know about the Home Affordable Refinance Program, or HARP, a five-year-old program to help homeowners who are underwater on their mortgages refinance to a lower interest rate.

“We know that there are hundreds of thousands of borrowers who can still benefit from HARP and are essentially leaving money on the table by not taking advantage of the program,” Watt said. “By engaging directly with local community leaders, faith-based organizations, local elected officials, and lenders, our goal is to leverage these trusted sources to reach as many borrowers as we can.”

Watt may be understating the potential untapped market for HARP loans, said Bob Michel, senior vice president at Hampden Bank. Well over 3 million Americans have taken advantage of HARP since it was created in the wake of the housing-market crash of 2008 and 2009, but some banking analysts say there could be just as many homeowners still eligible to apply.

“Basically, the HARP program was designed for borrowers who had kept their mortgage current, yet they were underwater or didn’t have sufficient equity to finance at today’s low interest rates,” Michel told BusinessWest. “The government tried a number of different modification programs, but most of those were designed for people who had become delinquent. They finally recognized that people who had done the right thing, who had maintained their payment schedule as well as they possibly could, would benefit from taking advantage of low interest rates. We’ve seen people lower their interest rates by 2%, 3%, or more with this program.”

Yet, Watt told HousingWire magazine that a combination of factors, including fear, is keeping others away.

“HARP is designed to reward those borrowers who are the most committed in this country. This is not a scam,” he said. However, “as it stands now, people don’t trust their lenders, and it’s creating uncertainty.

“Today,” he added, “there’s just a lot of people — and no one pays enough attention to it — who got burned.”

HARP is a means to relieve some of that sting, Michel said, as long as people take advantage of the program before it expires at the end of 2015.

Underwater Rescue

The bursting of the housing bubble in 2008 put millions of American homeowners in a serious predicament. Inventories soared nationwide, and home prices plummeted, and many recent homebuyers saw the value of their homes drop below the balance of their mortgages.

Interest rates declined soon after, but these underwater homeowners were prevented from taking advantage of lower rates through refinancing, since banks traditionally require a loan-to-value ratio of 80% or less to qualify for refinancing without private mortgage insurance.

FHFA and the U.S. Treasury Department introduced HARP in early 2009 as part of the Making Home Affordable program. HARP is one of the only refinance programs that allows borrowers with little or no equity to take advantage of low interest rates and other refinancing benefits. To be eligible, homeowners must meet the following criteria:

• Their loan must be owned or guaranteed by Fannie Mae or Freddie Mac;
• Their mortgage must have been originated on or before May 31, 2009;
• Their current loan-to-value ratio must be greater than 80%; and
• They must be current on their mortgage payments, with no late payments in the last six months and no more than one late payment in the last 12 months.

“The basic HARP program will easily go up to 125% of the market value of the home, so you can be underwater — and there are provisions that go beyond that on a case-by-case basis,” Michel said. “You still have to have an adequate credit rating and the ability to pay. But these are people who have been paying all along, so they’ve already demonstrated an ability to pay. The vast majority of HARP borrowers who applied with us have been able to be approved.”

The savings, nationally, have been dramatic. Tracy Hagen Mooney, senior vice president at Freddie Mac, said homeowners who refinanced through HARP during the first quarter of 2013 saved an average of $4,300 in interest payments over the first 12 months.

Interest rates have risen since then to between 4% and 5%, and Mooney, like most analysts, doesn’t expect them to return to 2012 and 2013 levels. “However, mortgage interest rates are still comparatively low. Looking back to the mid-2000s, the average 30-year fixed interest rate was around 6%,” she writes. “Given that nearly half of the 30-year fixed-rate mortgages owned or guaranteed by Freddie Mac or Fannie Mae have rates of 5% or greater, lots of homeowners stand to benefit from acting now.”

That’s the word Watt is trying to spread. “We know that there are hundreds of thousands of borrowers who can still benefit from Home Affordable Refinance Program and are essentially leaving money on the table by not taking advantage of the program,” he said.

Bottom Line

That’s Michel’s concern, too.

“I know there are a number of people out there that could still benefit from this program but are not taking advantage of it,” he told BusinessWest, adding that the bank has tried to reach out to them through direct mail and advertising campaigns. “We’re still in a time of historically low interest rates, but I think the growing consensus is that these rates are not going to last a whole lot longer. I think we’re on the verge, sometime in the next six to 12 months, of seeing interest rates rise.”

In other words, there’s still time for underwater borrowers to swim to shore — the sooner, the better.

Joseph Bednar can be reached at [email protected]