The Obama administration's Home Affordable Refinance Program is at
last helping legions of American homeowners with upside-down mortgages.
Nearly 1.1 million homeowners with little or no equity were able to refinance
last year under HARP, which assists borrowers who are current on their monthly
payments. That's nearly as many as in the three previous years combined, and the
latest figures show that early this year, the pace of these refis abated only
slightly.
The program has become a success story after a stumbling start with slack lender
participation. Banks were initially reluctant to participate in a program they
viewed as risky -- refinancing borrowers who owed more than their homes were
worth.
HARP is now regarded as a high point in Obama's mixed record on foreclosure
prevention.
"This is a program that has reached a lot of people -- probably more underwater
homeowners than anybody thought it would," said Guy Cecala, publisher of Inside
Mortgage Finance. "It is also one of the few programs that has rewarded people
who have stayed current on their mortgages."
The program has been successful because it addressed one of the hangover effects
from the housing bust: the millions of Americans stranded in expensive,
high-interest-rate loans. These borrowers owed too much on their homes and could
not refinance. Even the most creditworthy could not get new terms from their
lender unless they had 20% equity or more.
Obama launched HARP in 2009 as one of two government-backed programs to help
underwater borrowers. The better-known Home Affordable Modification Program, or
HAMP, encourages lenders to ease loan terms for borrowers who missed payments.
HARP waives the requirement for extensive new underwriting on loans that already
are backed by Fannie Mae and Freddie Mac, the giant government-controlled
mortgage companies. About 2.4 million refinances have been logged under the
program so far.
Initially, the program was underutilized by banks that were worried that Fannie
and Freddie might force them to repurchase any new, refinanced loans that went
bad. The Obama administration revamped and extended the program in 2011, and it
took off last year as banks found that making those new loans was actually quite
profitable.
There remain an estimated 2 million mortgaged homeowners eligible for the
program, which has been extended to 2015. But some experts believe the program
may have reached its peak potential and may begin reaching fewer and fewer
borrowers.
The program does not cover homeowners with mortgages that are in privately held
securities. It also allows borrowers to use the program only once, and mortgage
rates have fallen from one record low to another.
Congressional Democrats believe the program could be revamped with new laws.
Despite several pushes by the Obama administration to promote this legislation,
these efforts have stalled inside the Beltway.
Sen. Barbara Boxer (D-Calif.), who had introduced legislation that anticipated
many of the changes allowed by the Federal Housing Finance Agency, said in a
statement that other provisions in her bill would further streamline the HARP
process and increase competition.
"I am glad that FHFA has put into place provisions from my legislation that have
helped more than 1 million additional Americans refinance their mortgages at
lower rates," Boxer said. "But there is still more to do, and I will work both
legislatively and with the administration to remove remaining barriers that have
kept responsible homeowners from refinancing."
Nevertheless, the revamped program has helped borrowers such as Arthur and
Dickey Anne Cook, who remain underwater, owing about $270,000 on a Corona house
that they figure would sell for only $230,000.
The retirees used HARP to get a new loan that knocked nearly 2 percentage points
off their interest rate and slashed their monthly payment by $480. By getting
rid of the previous home loan, which they obtained five years ago through a
mortgage broker, they have now lowered their interest rate to 3.99% from 5.75%
through HARP.
"We hadn't missed any payments yet. But in another six months, I probably would
have," said Art Cook, 69, a former phone company manager and Army reservist
whose wife taught school. "Things keep getting more expensive, and we're on a
fixed income."
The way the program works now, refinances are permitted on loans sold to Fannie
and Freddie before June 2009. Fannie and Freddie, which back about 60% of all
mortgages, already are on the hook if the loans go bad, so their risk lessens if
the payments are lowered.
Borrowers must owe more than 80% of the home value. They can't have missed a
payment for the last six months and are allowed only one late payment in the
last year. And they must have a job or other income to pay the loan, although a
full review of employment and tax documents is not required.
The Cooks might have had a hard time if they had tried to tap HARP when it first
started.
The program started slowly in 2009 because it allowed lenders to refinance loans
only for up to 105% of the property value. Crashing home prices left millions of
people too underwater to benefit, and the loan-to-value ratio was quickly lifted
to 125%, but few banks were willing to refinance the deeply underwater loans.
Then last year the Federal Housing Authority, which oversees Fannie and Freddie,
approved more drastic changes. The 125% limit was abolished, appraisals
streamlined and paperwork slashed. What's more, lenders using HARP in its latest
version nearly eliminated any threat of Fannie or Freddie demanding that they
buy back flawed loans -- a major thorn in the side of banks these last few
years.
"The HARP program has been a big success," said Tim Sloan, chief financial
officer at Wells Fargo & Co.
Wells Fargo, the biggest home lender, said about 10% of the mortgages it funded
in the first quarter were HARP refinances. Sloan said that although that is down
from the "mid-teens" last year, there are still many customers who would qualify
for a HARP refinance.
scott.reckard@latimes.com
Times staff writer Alejandro Lazo contributed to this report.
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