HARP 3.0 – Fact or Fiction?

There are 11 million underwater homeowners in the US, and sadly, the vast majority of them have been unable to refinance to today’s record-breaking low mortgage rates. The government tried to solve the problem by implementing the Home Affordable Refinance Plan, or HARP, in March of 2009. This plan directed the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to accept mortgage refinances on the underwater mortgages that they owned.

Tuning HARP

At first, homeowners found it very difficult to refinance with HARP. Lenders and mortgage insurers were reluctant to risk approving underwater refinances. In response, the Treasury tweaked the program to remove much of that risk. This new version of the program, known as HARP 2.0, has been quite successful. "The typical borrower who refinanced reduced their interest rate by about 1.5 percentage points. On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months,” explained Frank Nothaft, Freddie Mac vice president and chief economist, in a recent press release. However, of the 11 million underwater homeowners, only one million of them have been able to refinance thus far. One major reason for this is that only mortgages owned by Fannie Mae or Freddie Mac are eligible for HARP.

HARP 3.0 Is a Pet Name, not a Program

HARP 3.0 isn’t a real program – it’s the nickname given by the media to a slew of proposals designed to improve on HARP 2.0. One proposed enhancement is  #MyRefi, which was put forward by the Obama Administration. #MyRefi would make refinancing available to underwater borrowers whose mortgages are not owned by Fannie Mae and Freddie Mac – for example, people who financed their homes with subprime mortgages, mortgages with negative amortization, Alt-A home loans with no income or asset verification or high-balance jumbo mortgages – in 2005, these mortgages accounted for over 50 percent of home loans closed.

HARP 3.0 Is Fiction -- for Now

If the Administration proposes something, does that make it so? Nope. In order for #MyRefi to become reality, it must be submitted as a bill and approved by Congress. The consensus of most policy wonks is that Congress will continue to be gridlocked during the election season and that #MyRefi will not become law anytime soon. Another HARP tweak making its way through the Senate is SB3085, the Responsible Homeowners Refinancing Act of 2012. It doesn’t include non-GSE borrowers, like #MYRefi does, but it does reduce costs to homeowners and eliminates some barriers to HARP refinancing – second mortgage lenders who try to block refinancing, for one. But don’t hold your breath for this legislation either – it’s been in committee since May 2012, and Congress-watching site GovTrackUS gives this bill a two percent chance of passing.

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