Reader Question: What’s the Deal With HARP 2.0?

I received the following email from a reader asking about the federal government’s Home Affordable Refinance Program (HARP) earlier this week:

I have been looking into the HARP 2.0 program to refinance my home. I qualify according to program guidelines, but find it hard to shop interest rates and find lenders that deal honestly with the HARP program.

I am wondering if many of your readers have personally dealt with HARP 2.0 now that it has some time to mature? I also I would be interested to find out for loans that were originated under HARP 2.0, how did the interest rates compare to the average current rate for the same type of loan? I have read that the banks are gaming the rates and charging higher rates for HARP loans even when the borrower has excellent credit.

Any info or the power of Seattle Bubble would be much appreciated.

This is a topic that I don’t personally have much knowledge in, so I reached out to some local professionals. First up, here’s what real estate educator Jillayne Schlicke had to say:

Interest rates quoted in the media are very deceptive. Just Google “mortgage rates __insert your city__” and see how many companies are advertising 3.0, 2.5,2.0 and so forth mortgage rates when those rates are for an ARM loan or a 10 year amortized loan or a loan for a person with 50 percent equity and an 800 credit score. Very deceptive. So a typical HARP borrower will make application and be surprised to see rates in the high 3s or above 4.0%.

Very few people actually qualify for those great, low rates. In the future I predict that lenders won’t be allowed to advertise rates OR they will only be allowed to advertise an APR. But that’s a different story for a different day.

Even when a HARP 2 borrower has excellent credit, the borrower owes more than the home is worth. This in itself makes the loan a very high risk loan.

Lenders charge higher rates and fees for high risk loans because when a person owes more than the home is worth and then another financial distress event happens, these borrowers are more likely to default vs. continue paying as agreed.

I would encourage you to make application with at least three different lenders. Here are three referrals of people I personally would use for my own loan:

I second the recommendation of Rhonda Porter. And not just because she painted me a pink pony. We used her when we bought our home and were very satisfied. And speaking of Rhonda, she happens to be the second professional I reached out to on this subject. Here’s what she had to say:

Many borrowers are disappointed with HARP 2.0 when they learn that rates are higher based on how high the loan to value is. Lenders have “risked based pricing” and very few are offering unlimited LTVs. Some of the lenders who have offered the unlimited LTVs have become so inundated with volumes, that they are refusing new applications (CMG and EverBank). Those who made into the pipeline in time are finding that it’s taking a couple months to close the loans. It’s frustrating for everyone.

We are constantly receiving updates from the lenders we work with stating that they are no longer accepting new HARP 2.0 applications unless they are the current mortgage servicer (we can send them back to the existing bank). We still have other resources as well but it’s a matter of knowing every lenders underwriting “overlays” that they add to the guidelines.

Rhonda also sent over a link to an entire post she wrote on this subject at her own blog: How loan to values impact pricing for refinances, including HARP 2.0

I’d also be interested in hearing from the readers on this one. Has anyone out there had first-hand experience working with the HARP 2.0 program?

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

12 comments:

  1. 2
    Jacob Beaty says:

    My wife and I went through the grueling process to refinance via Harp 2.0, I originally bought a home in 2006 with an 80-10-10, the 80 LTV was a 7/1 arm staring at 6% the arm was indexed to 1 year cmt + 2.75%. We originally tried to do a 20 year fixed but after being originally pre-approved on my salary alone the underwriter messed up on calculating the back end DTI (forgot to include our current mortgage, eventhough we provided a mortgage statement), we had to restart the processes with a 30 year fixed @ 4.625%, which at the time was about 50 bps above h quoted rate. I really didn’t care because it was (now) an investment property, it lowered my payment roughly $200 a month and I got rid of the adjustable rate exposure. All in all it was a huge pain in my a$$, but saved me cash

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  2. 3

    As to Jillayne’s comments about rate advertising being deceptive, a couple of years ago there was one company in Washington who never did a single loan of the type they repeatedly advertised on the radio. It was 100% bait and switch. I don’t remember the name of the company.

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  3. 4
    StillRenting says:

    I will also put in a recommendation for Rhonda Porter. We used her to get our loan this summer, after reading her blog posts for years. Ours was a purchase with a VA loan, not a refinance, but she was very helpful, the whole mortgage master team was great, and we got a great rate.

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  4. 5
    sofwarenginer says:

    To HARP or Not to HARP?

    Refinancing to avoid a FC or afford dinner tonight seems acceptable to me, albeit don’t get into that noose in the first place is my advice.

    The problem in a nut shell is most of the loan load in the first 3/4s of the loan is interest, so refinancing means even less principle paid down ASAP, irrespective of interest rate or monthly payment.

    As to banks integrity….LOL….now you have SWE rolling on the ground in laughter.

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  5. 6
    Russ says:

    I recently refinanced my home with Wells Fargo using what they call their Close at Home, Three Step refinancing System. When I originally got the advertisement in the mail, I didn’t think much of it and almost threw it out. When I called they quoted me 3.5% with no closing costs. I locked it then and there and three weeks later the loan was closed. Our LTV was probably north of 90%. They did a credit check, but they required no financial documentation(bank statements, w-2, etc), just proof of employment. The original loan was Fannie Mae, serviced by Wells Fargo, and I just received notification that the new loan was just sold back to Fannie Mae. Shockingly, one of the easiest financial transactions I ever went through.

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  6. 7
    Scotsman says:

    Plenty of potential customers. What is the incentive for the banks to refi a paying loan to a lower rate again?

    Percentage of each age group that is underwater:

    http://www.doctorhousingbubble.com/wp-content/uploads/2012/08/zillow-underwater-young-owners.png

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  7. 8
    Seattlite says:

    I refinanced my condo under HARP2 about a month ago and the process was arduously long (took 3 months). I took quotes from 3 different banks
    – BofA
    – Becu
    – Nation Star (they owned my previous mortgage and new one too)
    and finally went with Nation Star.
    While both BofA and BECU offered me slightly better rates but they told me that I need to pay PMI which was coming out to ~ $300. Nation Star owned my previous loan and offered to keep the PMI at same amount i.e. ~$120.
    My loan amount was ~218,000 and condo was accessed around $125000. My final rate was 4.62%, Nation star told me that this is the best they can do for a condo since condo have higher rates.
    My credit score is 750 +, no credit/loan of any kind, 6 yrs of jobs history and an income into 6 figures. I thought I should have gotten a better deal but seems like there isn’t much choice out there. Overall I am happy that I am saving over 350 dollars a month now, process was very slow and document intensive but it worked out in the end.

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  8. 9

    RE: Scotsman @ 7
    But what would Keynes or Hayek say about HARP?
    http://www.youtube.com/watch?v=d0nERTFo-Sk

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  9. 10

    RE: StillRenting @ 4 – Thank you!

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  10. 11
    Seattle Veggie says:

    I refinanced under HARP 2.0 with Homestreet Bank (Kate Beck) a few months ago and it was quite easy – closed in about a month or so. I also went to BoA to see what they could offer, (they held my original loan – house was bought in 2006) and they wouldn’t give me the time of day. The LTV was 117% and the rate is 4.375%, which saves us $500 per month off the previous payment.

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  11. 12
    Jeff says:

    We went through Costco’s program and got a great deal through Sterling Savings. $600 loan fee, no appraisal and 3.625 for a 30 year. It was through Harp, which helped us avoid the appraisal and assured we’d get the loan no matter what the LTV was. (We were a little north of 80% LTV). Anyway, I was very happy with the process and liked avoiding some of the std loan origination fees etc. We’re saving over $400 a month now! My only regret is that rates have come down even further but, regardless, it was a great move for us!

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