Lenders are becoming more willing to offer new loans to borrowers who don’t have any home equity after changes to the rules of the U.S. government’s Home Affordable Refinance Program.
President Barack Obama has made expanding the reach of HARP a centerpiece of his housing policy, most recently calling for Congress to pass a bill making the program more attractive to lenders in his Feb. 12 State of the Union address. Senate Democrats Barbara Boxer of California and Robert Menendez of New Jersey introduced a bill in February that would implement the president’s request.
Even without that legislation, policy changes that went into effect last year and at the beginning of this year are starting to help more borrowers, say analysts including Kevin Barker of Washington-based Compass Point Research & Trading LLC.
“At first we thought Boxer-Menendez would be the catalyst” for banks to expand HARP lending to new clients, Barker said in an interview, referring to the bill written by the two senators. “However, it seems that the new rules have made banks more willing to take the risk.”
HARP assists borrowers with mortgages backed by government- owned Fannie Mae (FNMA) or Freddie Mac, allowing them to cut their loan payments by refinancing at today’s low interest rates even if they are stuck in homes that have lost value. Many are paying interest rates as high as 6 percent, compared with the current average 30-year fixed rate of 3.52 percent.
Stumbling Block
The biggest stumbling block for borrowers has been lenders’ unwillingness to originate HARP loans for anyone other than existing customers. That’s because banks were potentially liable when new clients defaulted on HARP loans and weren’t liable when existing customers were unable to make payments.
Typically, Fannie Mae and Freddie Mac demand repurchases when they find that defaulted loans had flawed underwriting. The companies, which have been under U.S. conservatorship since 2008, buy mortgages and package them into securities on which they guarantee payments of principal and interest.
The largest banks -- including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) -- charged a premium for HARP loans to borrowers whose mortgages they serviced because those people couldn’t turn anywhere else, according to an analysis last year by Laurie Goodman of Austin, Texas-based Amherst Securities Group.
Changed Rules
In September, Fannie Mae, Freddie Mac and their regulator, the Federal Housing Finance Agency, changed the rules, announcing they wouldn’t go after the banks for failing to properly value a property when they originated HARP loans for both new and existing clients, as long as the lenders obtained an appraisal.
During an interview at Bloomberg’s New York headquarters in January, Quicken Loans Chief Executive Officer Bill Emerson called the policy change a “line of demarcation” that encouraged Quicken to do more HARP refinancing.
Between a quarter and a third of Fannie Mae HARP refinances involve a borrower switching to a new servicer; at Freddie Mac (FMCC), it’s between 20 and 25 percent.
The proportion will probably continue to increase, especially after another rule change that went into effect in January, company officials say. Now, Fannie Mae and Freddie Mac won’t force banks to buy back HARP loans that default as long as the homeowners make 12 months of on-time payments, even if the borrowers aren't the banks’ existing clients.C.Benson Blomberh
Lenders are becoming more willing to offer new loans to borrowers who don’t have any home equity after changes to the rules of the U.S. government’s Home Affordable Refinance Program.
President Barack Obama has made expanding the reach of HARP a centerpiece of his housing policy, most recently calling for Congress to pass a bill making the program more attractive to lenders in his Feb. 12 State of the Union address. Senate Democrats Barbara Boxer of California and Robert Menendez of New Jersey introduced a bill in February that would implement the president’s request.
Even without that legislation, policy changes that went into effect last year and at the beginning of this year are starting to help more borrowers, say analysts including Kevin Barker of Washington-based Compass Point Research & Trading LLC.
“At first we thought Boxer-Menendez would be the catalyst” for banks to expand HARP lending to new clients, Barker said in an interview, referring to the bill written by the two senators. “However, it seems that the new rules have made banks more willing to take the risk.”
HARP assists borrowers with mortgages backed by government- owned Fannie Mae (FNMA) or Freddie Mac, allowing them to cut their loan payments by refinancing at today’s low interest rates even if they are stuck in homes that have lost value. Many are paying interest rates as high as 6 percent, compared with the current average 30-year fixed rate of 3.52 percent.
Stumbling Block
The biggest stumbling block for borrowers has been lenders’ unwillingness to originate HARP loans for anyone other than existing customers. That’s because banks were potentially liable when new clients defaulted on HARP loans and weren’t liable when existing customers were unable to make payments.
Typically, Fannie Mae and Freddie Mac demand repurchases when they find that defaulted loans had flawed underwriting. The companies, which have been under U.S. conservatorship since 2008, buy mortgages and package them into securities on which they guarantee payments of principal and interest.
The largest banks -- including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) -- charged a premium for HARP loans to borrowers whose mortgages they serviced because those people couldn’t turn anywhere else, according to an analysis last year by Laurie Goodman of Austin, Texas-based Amherst Securities Group.
Changed Rules
In September, Fannie Mae, Freddie Mac and their regulator, the Federal Housing Finance Agency, changed the rules, announcing they wouldn’t go after the banks for failing to properly value a property when they originated HARP loans for both new and existing clients, as long as the lenders obtained an appraisal.
During an interview at Bloomberg’s New York headquarters in January, Quicken Loans Chief Executive Officer Bill Emerson called the policy change a “line of demarcation” that encouraged Quicken to do more HARP refinancing.
Between a quarter and a third of Fannie Mae HARP refinances involve a borrower switching to a new servicer; at Freddie Mac (FMCC), it’s between 20 and 25 percent.
The proportion will probably continue to increase, especially after another rule change that went into effect in January, company officials say. Now, Fannie Mae and Freddie Mac won’t force banks to buy back HARP loans that default as long as the homeowners make 12 months of on-time payments, even if the borrowers aren't the banks’ existing clients.C.Benson Blomberh