The Fannie Mae and Freddie Mac refinancing program for homeowners who owe more than their properties are worth needs to expand again to cover more borrowers, the secretary of Housing and Urban Development and Senate Democrats said today.
The Home Affordable Refinance Program, known as HARP, reduces some fees and waives risk for lenders who refinance loans that they service for borrowers with less than 20 percent equity in their homes. Homeowners with more equity should be allowed to participate and risk should be waived for lenders who refinance loans now handled by other servicers, HUD Secretary Shaun Donovan said today in Washington.
“A homeowner who actually has more equity in their home is, if anything, a lower-risk borrower relative to those borrowers who would be underwater in their loans,” Donovan said at a hearing of the Senate Banking Committee. “There’s a good economic case for doing this. It’s also a question of fairness.”
Calibrating foreclosure-prevention programs so that servicers and borrowers will take advantage of them has been a struggle for regulators and the administration of President Barack Obama. HARP was started with a goal of reaching 5 million borrowers. As of April, 1.1 million borrowers had been helped.
The Federal Housing Finance Agency, the independent agency overseeing Fannie Mae and Freddie Mac, in January unveiled a set of changes to the program, including allowing borrowers to qualify no matter how much their loans exceed the value of their homes, waiving some fees, and promising lenders a break from the warranties they sign when they originate certain loans.
The impact of those changes, which went into effect in March for most lenders, is unclear. The largest mortgage servicers said they received 750,000 applications for the updated program, known as HARP 2.0, Donovan said.
Still, a Federal Reserve survey of loan officers released last week found that almost half said their banks had “very little participation in HARP.”
Senator Robert Menendez, a New Jersey Democrat, said he and California Democrat Barbara Boxer would soon introduce a bill to expand HARP to as many as 17.5 million more borrowers. The bill would streamline refinancing for borrowers with more than 20 percent equity and would encourage competition among lenders by waiving warranties when they refinance loans. Borrowers end up paying higher fees when they must refinance through the lender who services the loan, Menendez said.
Some of those changes could be made administratively by the FHFA, Donovan said. Still, “to eliminate legal uncertainty,” Congress should also pass legislation mandating the revisions, he said.
More Buyback Demands
It is unclear how far FHFA will be willing to go to amend the program. Giving a break from warranties in HARP 2.0 was an about-face for Fannie Mae and Freddie Mac. The taxpayer-owned companies can revoke their guarantees for even minor infractions and force lenders to buy back loans deemed defective. The companies have increased buyback demands as they aggressively work to control costs.
Obama will talk about the need to expand refinancing efforts during a visit to Nevada this week, Donovan said.
“There’s a real urgency here because interest rates today are at the lowest level they’ve ever been,” Donovan said. “All expectations are that this window of record-low interest rates may not last a significant period of time.”
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