The Mortgage Bankers Association (MBA) is calling for significant revisions to the government's plodding HARP mortgage refinance initiative to make it more available to underwater homeowners.
The MBA is urging that the limit on how far underwater a mortgage can be to qualify for the program be raised or completely eliminated. Presently, the program has a cap of a 125 percent loan-to-value ratio - that is, the mortgage balance cannot be more than 25 percent above the value of the property for borrowers to qualify.
Given that many of the homeowners who would most benefit from this program have seen their property values decline by more than that, the MBA is urging that the cap be lifted.
Seeks deadline extension, standardized guidelines
The MBA is also urging that the deadline for the program, which is currently due to expire in June of this year, be extended until at least Dec. 31, 2012, to match the expiration date of its companion HAMP mortgage loan modification program.
In addition, the MBA is calling for Fannie Mae and Freddie Mac to adopt standardized guidelines HARP in regard to such things as limits on closing costs, income documentation, borrower and loan type eligibility, property inspections and employment requirements, generally advocating that the less strict requirement of either lender be adopted as the standard.
HARP - an acronym for Home Affordable Refinance Program - was established to help homeowners take advantage of low interest rates and improve their financial position by reducing their monthly mortgage payments. The government provides incentives for lenders to allow borrowers to refinance their mortgages despite owing more than their property is worth, typically an impossibility.
The program can do this because it applies only to mortgages backed by government-owned lenders Fannie Mae and Freddie Mac - which therefore already hold the risk. Refinancing such mortgages can actually be beneficial to them if it means underwater homeowners are more likely to keep making their mortgage payments.
HARP has fallen far behind its original projections, even more so than the much criticized HAMP (Home Affordable Modification Program). As of December 2010, the program has helped just over half a million homeowners refinance their mortgages, with just six months before the program is due to expire, compared to original projections of 4-5 million when it was launched in spring 2009.
The MBA's proposal comes at a time when the administration is floating plans to gradually wind down Fannie Mae and Freddie Mac, and to significantly reduce the government's role in mortgage markets. It also comes after a period when 30-year mortgage rates have risen by more than three-quarters of a percentage point from their all-time lows in November, greatly lessening the advantages of refinancing. Rates remain low by historical standards, however, and refinancing may still be appealing to borrowers with higher-rate loans, particularly those with adjustable rate mortgages due to reset to a higher rate.