HARP: More May Not Be Better

I’d really like to be happy about the latest move by the Federal Housing Finance Agency (FHFA), which is designed to help homeowners – including the under-water homeowners who owe more than their houses are worth – to refinance their loans and get into a better financial position.

On the surface, it looks like it could help a lot of people. The FHFA, which oversees Fannie Mae and Freddie Mac, announced October 24 that it is tweaking HARP, the Home Affordable Refinance Program. HARP was set up to help those borrowers who have been making their mortgage payments on time, but who haven’t been able to refinance in the face of falling home values.

The change is that the ceiling on HARP participation is now gone. Previously, homeowners couldn’t participate in HARP if their Fannie Mae/Freddie Mac-backed mortgage amount exceeded 125 percent of their home’s value. For reference, that’s a mortgage amount of $187,500 on a home valued at $150,000, or a mortgage amount of $250,000 on a home worth $200,000.

The FHFA estimates that this could help anywhere from 600,000 to one million borrowers. That’s a small share of the total number of people currently in under-water situations (estimated at 11 million homeowners), but no program will ever be able to help everybody.

So, could this be a big help to a lot of people in North Texas and elsewhere? Yes. Can refinancing be the solution to keep someone in their home without facing foreclosure in the event they run into financial trouble? Yes. Am I sold on the idea? No.

I’m ambivalent about this because of the federal government involvement. In order to get lenders to refinance the mortgages, the FHFA says lenders will be protected if problems show up later in the loans they refinance. Also, the lenders will only need to verify that the borrowers have made their last six mortgage payments, without appraisals to assess the homes’ current value. The program will waive some of the refinancing fees as well.

What concerns me most is that a lot of what got us into our current housing market depression was the federal government’s well-intentioned efforts to tinker with the market in one way or another. More of this kind of action distorts the market and just prolongs our pain.

With that said, I hope I’m proven wrong and that this action does yield some positive benefits for the homeowners involved and for the market as a whole. If it means fewer foreclosures – and even fewer short sales – later, that’s great. Even though we specialize in short sales, we sell homes the traditional way too, so we won’t be hurting for business.

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