H.R. 736 – To provide for the expansion of affordable refinancing of mortgages held by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.Introduced on the 14th of February by Representative Peter Welch
HARP 3.0 would open refinancing options for millions.
Legislation in the U.S. Senate would create a second wave of updates to the Home Affordable Refinance Program (HARP 3). The program is designed to help struggling homeowners obtain more affordable and stable mortgages through refinancing. The first updates to the 2009 program were dubbed HARP 2.0. With the pending bill, observers were quick to call the legislation HARP 3 .
What is HARP 3.0?
Introduced by U.S. Senators Robert Menendez and Barbara Boxer, Senate Bill 3085 says it all in the title: Responsible Homeowners Refinancing Act of 2012. Defining the purpose the act reads, “To provide for the expansion of affordable refinancing of mortgages held by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.”
Housing and Urban Development (HUD) Secretary Shaun Donovan recently hosted a Google+ Hangout with underwater homeowners. Moderated by Spencer Rascoff of real estate giant Zillow.com, the HUD Secretary answered questions about refinancing programs and pending legislation.
Referring to refinancing reform Donovan said, “We know that this is something that we can do more on, and we are seeing real results. We’ve had a doubling of refinancing applications since we put out many of our programs last year. The President made this a centerpiece of his We Can’t Wait Initiatives.”
Will HARP 3.0 combine SB 3047 & SB 3085 ?
Donovan outlined another bill, the Expanding Refinancing Opportunities Act, which would help non-government backed borrowers. But it is the much-anticipated HARP 3.0 changes, under Senate Bill 3085, that will be of the greatest help for HUD backed borrowers who are “paying their mortgages” and “doing the right thing.”
Part of the problem, according to Donavan, is that under HARP 2.0 some government-backed loans could not be refinanced due to loan-to-value ratio (LTV) requirements. Since HUD is already “on the hook,” easing LTV requirements makes sense. Part of a solution is an automated appraisal system using Fannie Mae and Freddie Mac data. For the 20% who now need a full appraisal, thus being barred from a refinance, HARP 3.0 would eliminate “the need entirely.” He reasons, an “appraisal doesn’t serve any real purpose.”
“There is a bipartisan interest in this legislation,” said Secretary Donovan. “But its not going to happen unless Americans in these situations reach out and let members of congress know ‘we need this help,’ it’s good for us. It’s good for our neighborhoods because its going to lower the number of foreclosures, and its good for the economy overall because it generates more money that re-circulates, creating jobs. We all benefit — there are no costs to the government.”
“Across the country there are encouraging signs in the housing market,” said moderator Rascoff. “Inventories are tight in some areas and values are rising, but that doesn’t mean homeowners are in the driver’s seat or out of the woods yet.” With 25 percent of homeowners underwater he points to government programs and HARP 3.0 that can help.
Upon introducing the bill, in early May, Senator Menendez said, “I agree with President Obama’s ‘to do’ list to create jobs and strengthen our middle class. That’s why Senator Boxer and I are introducing legislation today to clear the way for responsible homeowners to refinance.”
For Senator Boxer, it’s a “win for responsible homeowners” who will under HARP 3.0 be able to take advantage of record low rates. She adds, lenders and communities are winners, as well, with an “influx of new business.”
Analytics Chief Economist, at Moody’s, Mark Zandi projects that HARP 3.0 will allow 3 million more responsible homeowners to refinance. With a historically low rate of 3.84, those paying above 5 percent under Fannie Mae, or Freddie Mac, can save up to three thousand dollars a year with refinancing.
HARP 3.0 could expand access to refinances for homeowners.
HUD Secretary Shawn Donovan recently testified before the Senate Committee on Banking, Housing and Urban Affairs to address concerns about the effectiveness of HARP 2.0, as well as proposed legislation in line with President Obama’s plan to “Help Responsible Homeowners and Heal the Housing Market” HARP 3.0 .
Since the launch of the original Home Affordable Refinance Program (HARP), over 14 million homeowners in America have gotten refinancing on their mortgages. Donovan estimated that these refinances have been responsible for close to $27 billion in economic activity per year.
The next phase, known as HARP 2.0, was implemented to pinpoint the barriers that were preventing certain people from refinancing. In March of this year, financings were more than double what they were a year ago across the country — more than triple in the hardest hit states.
With FHA refinancing fees set to be reduced, the number of HARP applications should increase even more. And it doesn’t end there: another phase of HARP may be in the works, pending several pieces of legislation designed to make refinance and equity building available to all responsible borrowers.
HARP 3.0 Legislation in the Works.
One proposed bill is the Responsible Homeowner Refinancing Act of 2012, sponsored by Senators Barbara Boxer and Bob Menendez. The act gives HUD the authority to extend streamlined refinancing to all loans insured by government-sponsored enterprises. This means that borrowers with GSE loans would no longer be hindered by appraisal or loan-to-value requirements.
Another proposal would enable refinancing for borrowers with non-government-backed mortgages. These borrowers would be eligible if they are employed with good credit and are up to date on their mortgage; certain limits to the mortgage amount would also apply. While the FHA would run the program, the HARP 3.0 financing would come from outside the administration.
A third piece of legislation would require GSEs to cover the average closing costs for refinanced loans with new terms under 20 years, saving borrowers $3,000 on average.
Clearing obstacles to refinancing.
So, what hurdles do homeowners trying to refinance their loans still face? Some borrowers with 80% or lower loan-to-value ratios on their first liens can’t refinance because of second liens or additional debt. They must have the second mortgage written down or even extinguished before proceeding. Appraisal costs can also be a problem, as not all areas are covered by automated appraisals and instead require more expensive manual ones, discouraging refinances. Costs can also be affected by competition (or the lack of it) among servicers, and some servicers don’t have enough incentive to finance loans unless they are already servicing them.
One way to change this would be the facilitation of cross-servicer refinances. The goal would be to bring these to the same level as traditional same-servicer refinances by setting the same eligibility standards and representations and warranties for both groups. This would include loosening the underwriting requirements for cross-serviced loans to allow for greater competition and thus more favorable refinance options for borrowers.
Donovan said that there are measures planned to protect against risk in extending refinancing to non-GSE borrowers. Since these borrowers need to be current on their loans and meet credit and employment conditions for eligibility, the loans would already be considered low-risk. For high-risk underwater loans, refinancing would only be possible if they were written down to a loan-to-value ratio of 140% or less.
With a HARP refinance, the percent of coverage and premium rate of the mortgage insurance are unchanged, as only the existing coverage is being modified. The premium rate can be enacted on a new loan amount, and any change in the amount has an effect on the premium.
MI is automatically canceled either at the halfway point of the life of the new loan or at 78% of the new loan value, depending on which comes first. However, the lender may opt to cancel any MI policy paid by the borrower at any time.