What is Obama’s HARP? (Home Affordable Refinance Program)

Is the HARP Program going to be the savior that it is meant to be for the housing market or is it just delaying the inevitable?

Before I worked in Short Sales I worked in Loan Modifications, so I would like to think that I have a pretty good understanding of the loss mitigation alternatives that are out there for homeowners.  While I hate always having to be the pessimist on Government legislation/aid, I cannot help but see that this is just going to be another failed attempt to shore up the housing market!

Before I get into my opinion about the program lets talk about its substance.  While most lenders have been unwilling to modify current mortgages, which alienated many borrowers, the HARP program has been designed to aid those who could not afford their mortgage but did not want to “mess up” their credit. Although there has been the resolution of a “DU Refiance Plus”, in which a current borrower can refi up 125% of the current value of the property, HARP aims to take it one step further.

The Federal Housing Finance Agency announced today that it is going to remove the 125% cap.  This means that even if your property has decreased in value by more than 25% of the loan balance you will be able to refinance, and lower your mortgage rate.  On top of this the FHFA has reduced certain fees, eliminated the need for a new appraisal, and extended this program out to the end of 2013.  While the complete guidelines of the program are to be released to mortgage lenders by November 15, the following general criteria is already known:

– The Existing Mortgage must be owned or backed by Freddie Mac or Fannie Mae.

– The existing mortgage must have been sold to Freddie or Fannie before 6/1/2009.

– The exisiting mortgage cannot have been refi’d under HARP previously.

– The Current Loan to Value ratio must be more than 80%.

– The existing mortgage must be current, with no late payments in the past 6 months, and no more than one late payment in the past 12 months.

So far so good right?  No.  Wrong… the reason that I believe this will ultimately be bad for the market is three fold.

First it is going to do what it is intended to do: Shore up the prices in the housing market.  This is bad because, it is in actuality helping to maintain higher prices on properties that are not worth those prices anymore.  It is shoring up the pre-bubble prices, and will have a negative effect on the market returning to a “marked-to-market” value on all homes in the subject area.

Secondly it is diverting the homeowners attention away from the fact that their home is NOT a good investment!  They are still going end up paying the artificially driven up price that they were sold on before the bubble burst; and unless they hold that property until maturity or even longer, they are not going to see any equity/profit!  This program is directly targeted at helping those who are more than 25% underwater… How long do you think it will take someone who is 25%+ in negative equity to return to a profitable position for selling???

Thirdly just as modifications were band-aids for distressed homeowners, who ultimately returned to default a few short months later, how many people are going to spend money going through this refinance process and then decide a few months later that its not worth it to keep the property?  Then they are thousands of dollars deeper in trouble, and in a worse position then they were previously.

Lets also not forget the fact that this program is going to be essentially further bailing out those who originated these horrible mortgages, and the big banks that are servicing these mortgages.

As everyone who understands the housing situation knows: the only way to help distressed homeowners is to address the principal reduction issue.  These over-inflated mortgages are going to hurt the housing market until we truly reach a bottom, and anything to slow our progression toward this marked-to-market level in home prices needs to be avoided.

I believe that just as modifications did, the greedy are going to benefit and the helpless are going to remain without help!

I hope that I am wrong, but i doubt I will be!

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John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals.
He is also one of our main contributors on the Blog. (please see his profile page on the main site for more information.)

About John Maseredjian

John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals. He is also one of our main contributors on the Blog. (please see his profile page on the main site for more information.)

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