HARP 3.0 What You Need to Know
Additionally, HARP 2.0 requires borrowers to have mortgage insurance with Fannie, Freddie, or a participating lender. HARP 3.0, if signed into law, would drop that requirement, allowing private-label loans to qualify for refinancing under HARP auspices.
HARP 3.0 also relaxes the payment history requirements. Borrowers can still qualify for HARP 3.0 even with a late payment. Moreover, HARP 3.0 would relax the 80 percent LTV requirement, allowing people who are actually underwater meaning they owe more on their homes than their homes are worth to take advantage of todays lower interest rates. Defenders of the bill also argue that responsible borrowers are not penalized for not being underwater: The bill allows them to participate, too, even at lower LTV ratios.
The bill also allows people to refinance without necessarily documenting income or employment. Sen. Boxer believes this will streamline the process and reduce costs.
The previous version of HARP established a somewhat arbitrary cutoff point of May 31, 2009, to qualify for HARP refinancing. Any loans dated later than that don't qualify which has frustrated a number of people who bought shortly afterwards. According to reporting from Inside Mortgage Finance, however, the Obama administration is pushing Congress to move that date to the right, to sometime in 2010 thereby allowing more underwater borrowers to qualify for refinancing. CompassPoint LLC estimates that moving the date back by one year would allow an additional $27 to $43 billion in unpaid loan principal to qualify for refinancing.
HARP 3.0 would also allow more lenders to compete for the business. A recent study by Amherst Securities Group found that lenders charged their own existing customers much more in interest than they charged new customers. More than 50 basis points more, in fact an amount big enough to represent between $2.5 and $5 billion per year in revenues to lenders.
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So who might benefit from the passage of HARP 3.0?
- The self-employed who went with a stated income loan product prior to May 31, 2009, (or whatever cutoff date Congress ultimately picks) but who can now verify his income.
- People with jumbo mortgages in high cost areas.
- People who had to take out subprime loans or Alt-A loans prior to May 2009 (meaning less-than-stellar credit), and who are in a better situation now.
- People who would like to refinance under HARP but who have too much equity in their homes to qualify, because of the 80 percent or better LTV ratio requirement. However, many of these people, if their credit is good, can refinance with or without HARP.
The bill can still be altered and amended during committee, and even as it heads to the floor, assuming it passes committee. However, with so many Democrats already signed on as co-sponsors, the Democrats in charge of the Senate, and the backing of the administration, it has an excellent chance of passing the Senate in some form, if the Democratic leadership puts it's shoulder to the proverbial wheel to get it passed.
But that was true last year, too and the 2012 version, written with very similar language to this bill, died on the vine.
One reason? Republicans aren't so keen on the bill, and they control the House. They also have the ability to block any floor votes in the Senate, thanks to cloture rules, which require a 60-vote majority to bring non-budget bills to the floor for a vote.
Why isn't the GOP signing on to this popular program? Simple: Money isn't free. Any institution that refinances performing loans at a lower interest rate is signing away future income. If you lend money at 6 percent, it costs you money to refinance the loan at 4 percent, unless you get in some significant fee income on the front end. Ultimately, this hurts the lending industry and by extension, the retirement funds, pension funds and mutual funds that own them. If passed, HARP would represent a significant transfer of wealth from people who invested prudently to people who borrowed at the wrong time and who invested poorly. It would, essentially, amount to savers bailing out borrowers.
This is, however, a difficult and convoluted case for a politician to make and Republicans have been generally content to let the bill die a natural and quiet death in committee rather than pound the table in opposition.
Supporters of the bill, moreover, argue that the redistribution of wealth from savers to borrowers would be offset, in the aggregate, by increased consumer spending assuming consumers spent any savings realized from refinancing.
The Menendez bill has 22 co-sponsors, overwhelmingly Democrats, along with one independent, Bernie Sanders of Vermont. One of the co-sponsors, Sen. Frank Lautenberg, (D-NJ), passed away this week. The bill also has the backing of a variety of groups that stand to benefit from any decrease in defaults or increase in consumer spending. It is also generally supported by liberal-leaning groups, such as the Center for American Progress.
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Sources For This Article
Posted in Law Post Date 11/11/2015