The number one most challenging part of my job is that I can’t help everyone. Every day I speak with homeowners who would like to refinance their home into more favorable terms: terms that will help them and their family regain financial stability. As much as I’d like to help them, my desire alone is simply not enough. As a lender, I am limited to providing loans according to the terms set forth by Fannie Mae and Freddie Mac.
A new hope for homeowners came in January of 2011 when Barbara Boxer introduced S.170 into the Senate. Better known as the “Helping Responsible Homeowners Act,” S.170 would replace the current HARP program and make refinancing into more favorable terms a viable option for a much larger percentage of homeowners – especially those with little to no equity.
The current Home Affordable Refinance Program, better known by the acronym “HARP,” has generated a lot of media attention for Fannie and Freddie. It is currently the only program that allows homeowners in a negative equity position to refinance their home. Homeowners who owe between 80 and 95 percent of their house’s value and are eligible to refinance through other programs will find that the HARP program is the most financially beneficial for them. These points have been discussed in great detail by the media.
Although the benefits of this program have been well discussed, the HARP program has significant shortcomings that have been given little to no media coverage. The largest shortfall is that fewer than 5 percent of American homeowners are eligible to benefit from it. This means that the remaining 95 percent of us need to find other alternatives in an already crunched credit market. Homeowners with little to no equity will find their options to be extremely limited. The most challenged are those who owe more than their house is worth. These homeowners simply have no options to refinance if they are not eligible for the HARP program – which very few are.
Under S.170, many of the restrictions which exist under the current HARP program would be eliminated. The biggest change would be the removal of “loan level adjustments.” Under the current HARP program, homeowners are eligible to refinance even if they owe up to 125% of their property’s value. However, the rates available to these homeowners are not the same as the rates available to those with more equity. Under instructions by Fannie and Freddie, lenders instill these loan level adjustments to provide slightly higher rates to those in a negative equity position.
As proposed, S.170 first eliminates the 125% maximum LTV. This would enable someone to refinance even if the balance on their mortgage was double, or even triple the value of their house. As long as these homeowners had remained current on their mortgage and wanted to refinance, they would be able to under this program. Moreover, S.170 eliminates the practice of loan level adjustments, meaning that this same homeowner would be able to receive the same “best” interest rate afforded to those with more equity.
A second significant improvement afforded by S.170 is the elimination of HARP’s delivery date requirement. Under current legislation, HARP requires a loan to have been delivered to either Fannie Mae or Freddie Mac prior to March of 2009. This effectively means that any loan originated after January of 2009 is ineligible for assistance under the HARP program. The proposed S.170 bill would eliminate this requirement and open the door to all loans owned by Fannie or Freddie regardless of the delivery date.
There are a few smaller changes that S.170 brings, but these two biggies would open the doors wide open for a much larger percentage of American homeowners to refinance into more favorable terms. The benefits would lead to less foreclosures, improved stability in the housing market, and additional disposable income for homeowners to reinvest and stimulate our struggling economy once their mortgage payments have been lowered.
Unfortunately, S.170 is going nowhere. Since its introduction in January of 2011, the bill has been referred to three separate committees and has never been heard from since. It may take a grass-roots movement on the part of the people to get it moving again.
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At least the government is consistent. First, it made mortgages available to those who could not afford them. Now, it bails some of them out.
ReplyDeleteThanks for the update.
Anthony Keene
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