Kirk M West's Blog

HUD Secretary Shaun Donovan today announced that the Federal Housing Finance Agency has authorized Fannie Mae and Freddie Mac to raise the Home Affordable Refinance Program's (HARP) loan to value (LTV) ceiling from 105% to 125%. 

The Home Affordable Refinance Program was designed to assist borrowers who have demonstrated an acceptable payment history on their existing Fannie Mae or Freddie Mac owned mortgage loan. Unfortunately due to rising unemployment levels and increasing foreclosure rates, demand for housing has weakened and property values have continued to decline, which has blocked many borrowers from utilizing HARP.

The expansion of Fannie Mae's and Freddie Mac's LTV guideline aims to expand qualified homeowner's refinance opportunities. The underlying initiative is that lower monthly mortgage payments will raise real household incomes and therefore afford more spending power upon consumers. In a government press releases, Treasury Secretary Tim Geithner stated...

"By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly. It's a crucial step in our broader efforts to get America's housing market and economy on the path to recovery."

Thus far the effectiveness of the HARP program has faced many barriers. Among these roadblocks: lenders adding underwriting overlays and guideline restrictions, lenders all together not participating in the program, difficulty determining if Fannie Mae/Freddie Mac own your mortgage because of addresses not exactly matching the original note, additional costs because of lender imposed risk based loan level price adjustments (on top of GSE LLPAs), the unwillingness of banks to subordinate second mortgages, reluctant mortgage insurers, and the Home Valuation Code of Conduct.

Since the program was launched on April 1,2009 several updates have been made to counteract these roadblocks, however HARP remains unable to live up to the hype surrounding it. 

My opinion about this announcement is nothing short of skeptical.  While the intent may be honorable it is just too far fetched.   Several of the reasons mentioned above are clear examples of why these programs have not worked.  This is simply history repeating itselft as we have seen over the past 24 months with FHA Secure and Hope for Homeowners.