Rumors are flying today about a proposed HARP 3.0 that would further expand the program to borrowers whose mortgages are not backed by Fannie Mae or Freddie Mac.

It's being reported that senior HUD officials and members of the Senate Finance Committee have indicated that a HARP 3.0 could be out by late June. The source for the information is the owner of a California mortgage company with business contacts in Washington, according to Rob Crisman of Mortgage News Daily.

Called for in State of the Union

Although that's far from substantiated, an expanded HARP program covering non-Fannie or Freddie mortgages wouldbe in keeping with one of the priorities President Obama laid out in his State of the Union message in January. Since that address, when he called for enabling all "responsible homeowners" to refinance their mortgages at today's low rates, expectations have been high that some sort of expansion of HARP was in the works.

Although it has been largely criticized for falling short of its ambitious early goals, HARP to date has enabled approximately 1 million low- and negative-equity homeowners to refinance their mortgages at lower rates. A recent change in the program, known as HARP 2.0, allows borrowers to refinance regardless of how far underwater they are on their mortgage, rather than the previous loan-to-value limit of 125 percent (i.e., a mortgage balance that is 25 percent higher than the value of the home).

One of the program's biggest limitations, however, is that it is limited to borrowers with mortgages backed by Fannie Mae or Freddie Mac. Since many of the mortgages issued during the housing bubble weren't eligible for Fannie Mae or Freddie Mac backing, those homeowners are now locked out of the HARP program.

Approval could be an obstacle

It's not clear what sort of action would be required to expand HARP to non-Fannie or Freddie borrowers, though. The original HARP and the new guidelines for HARP 2.0 were created by administrative actions. This could be done because Fannie and Freddie are currently operating under the authority of the Federal Housing Finance Administration, having fallen into government conservatorship as a result of the 2008 financial crisis.

Expanding HARP to cover strictly private mortgages, however, might require action by Congress. That would be a tough sell, given likely resistance by congressional Republicans, who have been critical of the administration's mortgage relief efforts to date. However, if funding could be provided under an existing authority, such as leftover funds from the Troubled Asset Relief Program (TARP), it's possible that the program could be expanded simply through an administrative action.

Published on April 25, 2012