Election Year Grandstanding To Make For A Better HARP?
The Senate Banking Committee is rushing to finish a bill before they take their summer vacation in August that would dramatically slash fees on refinancing loans under HARP. I’ve written quite a bit over the last few months about the Making Home Affordable Refinance Program (HARP) for a couple of reasons. First, the program is helping some home owners who owe more than their home is worth refinance to a lower payment. Second, it’s one of the worst implemented loan programs I’ve ever encountered.
The Hill, an online publication covering political topics, reports this week on efforts by Senators to make new amendments to HARP. The biggest change announced is that the bill hopes to prevent Fannie Mae and Freddie Mac from collecting what are known as Loan Level Pricing Adjustment (LLPA) fees on loans being refinanced under HARP guidelines.
LLPA fees are what Fannie and Freddie charge lenders, and hence passed on to consumers, for the incremental risk of a particular loan transaction. These are fees that would be added to the lender’s base rate and fees. For example, let’s say a bank rate sheet said today’s base rate for a 30 year fixed rate loan was 3.625% and zero points. You are applying for a HARP refinance and your FICO score is 718. Under Fannie Mae’s LLPA fee schedule, the bank would need to add 1% in fees to your base cost. If your loan request is $200,000 then that added $2,000 to the cost of your refinance.
In a typical loan request you are creating a new loan and new risk, so the LLPAs make sense. The lender needs to be able to charge a slightly higher fee for transactions or borrowers that represent a higher risk than another borrower with a stronger application. However, the Senate Banking Committee bill addresses the issue that by definition a HARP refinance is just replacing a loan that Fannie Mae or Freddie Mac already own. Therefore there is no new risk being created – they already have your loan and any risk associated with it. Why charge risk based fees on a HARP refinance when they already have the risk?
Anthony Sanders, a real estate professor at George Mason University, says this is just an election year stunt and that no matter who wins the Presidency, “I doubt we’ll hear anything about HARP again.” As it currently stands, HARP is only authorized until December 31 of 2013.
Completely ignored in the discussions is the fact that HARP is being horribly serviced by the nation’s lenders. I network with other mortgage professionals across the country, and they all say the same thing – it is very difficult to get one of these loans for most clients. Yes, some applications sail right through. But a large percentage of applicants are sitting in line for upwards of 90 days or more only to find out the lender they chose doesn’t offer the full benefits promised by HARP. Rebecca and I have spoken to numerous applicants recently who started with their bank way back in March only to find out now that the bank doesn’t offer the features they need.
What’s telling me the program is struggling is that the number of lenders offering unrestricted access to HARP has been constantly decreasing since the roll out in April. The normal cycle for a new loan product is for more lenders to jump into the market after they see the success of the program. This is the first program I’ve seen lenders running away from.
If you think you qualify for a HARP refinance make sure the lender you chose offers Expanded Approvals and can transfer the mortgage insurance policy (if your current loan has PMI). There are other hot buttons as well, but those are the two most common road blocks for lenders.
As always, if you have any questions just give us a call!
Michael Mullin has 22 years’ experience in the lending industry. In that time he’s directly helped over 1,400 families finance the purchase of a new home or refinance an existing loan. Rebecca has a CPA background in auditing financial institutions which brings an incredible resource to First Priority Financial. They are licensed to help families in the states of WA and CA. If you, or anyone you know, needs help with a home loan call 509-252-9151 or send an email to MMullin@TheLoanConsultant.com.