11 Million Homeowners Seeking Mortgage Help Find Hope and Frustration in New HARP 2.0 Program

by Richard Fonfrias, J.D. Chicago's Financial Rescue & Bankruptcy Lawyer Fonfrias Law Group, LLC

If your home is underwater - meaning that you owe more than your home is worth - you probably have not been able to refinance your home, at least yet, under HARP 2.0, the government's second attempt to help you under the Home Affordable Refinance Program.

Many borrowers - called "responsible homeowners" by President Obama - who have good jobs - solid credit profiles - perfect payment records - and the desire to stay in their homes - have watched from the sidelines as bank after bank has refused to refinance their homes.

In 2009, the federal government's first effort to help homeowners refinance their homes was tepid at best. Today, however, the wheels for the new government program are turning, bringing hope and cautious optimism to borrowers who were once drowning.

As a result, home loan applications have flooded bank mortgage departments, even as homeowners suspect they will not likely get the lowest interest rates.

Guy Cecala, publisher of Inside Mortgage Finance newsletter, says "The updated program is still far from perfect, but most people, both consumers and those in the mortgage industry, would say it's a huge improvement from what we had in the past."

Of the four to five million homeowners expected to get results from the first program, only about one million actually received help, due mostly to the program's ultra-restrictive rules. So the government gave it a second try, calling it HARP 2.0. For now, it's too soon to know whether 2.0 will be succeed where the other program fell short. Or whether it will fail, proving to be one more program that promised far more than it actually delivered.

Banks suggest that borrowers have good reason to hope, as long as they can be patient. HARP applications have poured into banks, causing many institutions to hire additional mortgage loan staff to handle the flood. At Bank of America, HARP applications now account for over half of all refinancing applications, with those at Wells Fargo accounting for just under half.

Banks have a huge reason to keep homeowners motivated because they stand to profit greatly from this redesigned program.

Even so, some borrowers and mortgage brokers aren't seeing good results. They talk of the frustration and roadblocks, saying that what looks good on paper isn't coming to fruition as predicted.

For example, a young software engineer who bought a condominium in Oak Park for $280,000 in 2008 watched as the market drowned his $237,000 mortgage when two units exactly like his recently sold for $150,000. Now he's facing a mortgage that is 158 percent of his home's value. And it's no help that he has a good income and 760 credit score.

This engineer's loan application was turned down by GMAC (his current mortgagee) and several others. He heard many reasons including that his the loan-to-value ratio was overly high, even though HARP 2.0 erased the cap. Another lender said he didn't qualify for an appraisal waiver, stating he would have to get an appraisal of $206,000 minimum, which he felt wasn't possible.

Even so, he's still optimistic because a smaller bank has welcomed his application and seems positive, as least so far. Refinancing at a lower rate could reduce his monthly payment by as much as $400, so he hasn't given up.

In 2012's first quarter, HARP loans totaled 14 percent of refinancing efforts under Fannie Mae or Freddie Mac, which is up 12 percent per year for the past two years.

Meg Burns of the Federal Housing Finance Agency says early results are significant, with 180,000 first-quarter refinancings, roughly twice the 93,000 in 2011's fourth quarter.

So what are your chances of getting refinanced under HARP 2.0?

The basic requirements are these: Fannie or Freddie must have owned or backed your loan and the sale to either must have been prior to May 31, 2009. Your home equity must be less than 20 percent. And in the past six months, you must have made all house payments on time, with no more than one payment being late in the past year. Also, this must be your first refinancing through HARP.

You may find shopping for HARP refinancing irritating because many big banks offer the loans only to their existing borrowers. Analysts say banks think new customers are riskier, especially if they're in deep water. So naturally, banks will help their existing customers first.

The Fannie and Free regulator says it shouldn't matter whether a customer is new or existing because it eased regulations that leave the lenders on the hook if the loan turns sour.

Even so, banks have been able to increase prices due to the lack of competition. One securities manager says HARP borrowers could pay higher interest rates than with traditional refinancing. And while the applications shouldn't take much time, since banks are working with existing customers, the fact is that banks can charge whatever they want - and borrowers have few options.

In some cases, borrowers with mortgage insurance are encountering obstacles since it may be hard to transfer the insurance to a new loan. Others have run into problems or delays if they have second mortgages on their homes.

One mortgage branch manager said many of his clients who meet HARP 2.0's guidelines have been denied new loans by Fannie's and Freddie's automated underwriting systems. He said he has discovered that reducing the customer's credit card debt has helped, but not in all cases.

Today, borrowers who have complex financial circumstances or whose homes are far underwater should not give up. The rules keep changing to the homeowner's benefit and more opportunities keep surfacing. A "no" now could turn into a "yes" in a few months, advises a vice president of a national mortgage broker.