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REFI UPSIDE DOWN HOUSE WITH Fannie Mae and Freddie Mac

On March 2009, the government executed one of the most ambitious mortgage bailout projects, ever witnessed in the history of the United States. The bailout project was coined as the Home Affordable Refinance Program or HARP. The target of this refinance plan was to provide relief to the underwater mortgage borrowers and prevent their home from impending foreclosures. However, the HARP was ineffective to meet the expectations of the majority of the masses.

As per the government forecasts, HARP was expected to benefit around 5 million struggling mortgage borrowers. However, only a million and a half people were able to take advantage of the refinance program. This is because the eligibility criteria set for the above program was restraining. As a result, majority of the underwater borrowers were left out of the HARP.

Advent of the HARP 2.0

The failure of the HARP compelled the government to revisit its maiden program and come up with yet another improved version of the HARP on 24th October, 2011. It came to be known as HARP 2.0. It has been officially put to effect on 1st December, 2011. The renewed HARP was developed to cater to the needs of those borrowers with a 135% lesser loan-to-value ratio. Moreover, HARP 2.0 was slated to bring under its fold people with 135% higher loan-to-value ratio.

HARP 2.0: Its eligibility criteria

According to the new HARP rules people must meet the following specifications to take advantage of the HARP 2.0:

•1. A borrower should not be late in payment for more than once during the past 12 months.

•2. Only those borrowers who make timely loan payments will be eligible for the refinance program. Moreover, a person should not fall back in payments for more than 6 months. As per the HARP rule, a payment that is due for more than 30 days is marked as due payment.

•3. Either Fannie Mae or Freddie Mac should have bought the mortgage loan of a borrower earlier than 1st June, 2009.

•4. Only fresh and first-time HARP applicants will be inducted into the program and not those people who had applied for the older version of the HARP.

Review of HARP 2.0

As soon as the HARP 2.0 was officially announced, there was a gamut of mixed feelings amongst the people. Many financial analysts are of the view that it has got much better and may become successful in meeting everyone’s expectations. The shortcomings in the previous HARP were meted out and thus it is expected to bless hundreds of thousands of borrowers with underwater properties.

HARP 2.0 has been designed in such a way that it encourages more and more mortgage lenders to embrace the refinance programs. Basically, the government reduced the responsibility of the lenders and the three largest mortgage lenders viz., BOA or Bank of America, Wells Fargo and Chase have dropped the cap of 135% of home value so that larger number people could take advantage of HARP 2.0.

Another HARP on the anvil

HARP 2.0 was no doubt an improved version of the first HARP and performed better to save a good number of people from going homeless as a result of large scale foreclosures. However, because of HARP 2.0, people’s expectations rose.

The Senate Banking Committee is working on a new bill that is tentatively named as the Responsible Refinancing Act of 2012. As per the draft bill, a loan originator can refinance an underwater mortgage of another originator without inviting any lawsuit against him or the borrower. However, refinancing can be an uphill task if the original lender refuses to refinance any particular mortgage.

by Gaberial Knight for DiJulio Law Group

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