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Lenders to Meet With FHFA Regarding HARP 2.0 Issues

Written By:
December 12, 2011 at 6:13 PM

Now that bankers have taken a close look at HARP 2.0, Bank of America (BOA) announced that lenders would meet with the Federal Housing Finance Agency (FHFA) this week to discuss some issues and get further clarifications regarding the latest homeowner refinancing scheme. The new program helps borrowers with little or no equity qualify to refinance their higher rate loans into low interest rate mortgages.

The original HARP program, released in February 2009, was supposed to help four or five million homeowners. However, figures released at the end of the second quarter 2011, showed 838,441 homeowners benefited from the HARP. Over 776,000 of these homeowners had loans with loan-to-value ratio (LTV) between 80 and 105 percent.

HARP 2.0 removes the loan-to-value (LTV) cap—a major impediment in the previous program that, freeze many borrowers out of the mortgage refinance market. It also eliminates some of the liability lenders faced concerning certain mortgage underwriting improprieties from the previous loans and reduces some of the refinancing costs

According to Vijay Lala, the Bank of America (BOA) executive who manages BOA’s HARP program, the modified program has some requirements that “we we didn’t think were going to happen, that are making it more operationally difficult to implement. “ Lala states the latest challenges will slow down the program, but not “derail” the program.

Lala referenced requirements that lenders verify borrowers’ passive income with documentation, including alimony or retirement pay. Lenders can make employment verifications with just a telephone call. BOA’s feedback to the modifications carries significant importance. BOA has the largest loan servicing operation- with 20 to 25 percent of mortgages, which may eventually qualify for refinancing based on to loan origination dates and mortgage interest rates.

These setbacks slow down receipt of the economic benefits expected for the housing market and stimulate consumer spending anticipated in other areas of he economy.

Activities in the mortgage-backed security bond market continue to suggest that HARP 2.0 will have a minimal impact for homeowners. Since October 24, when President Obama official announced forthcoming changes to HARP, Treasuries backing 30-year fixed rate loans with 6.5 percent interest rates, have risen one percent--to 110 cents.

Banks Need Time to Implement Changes

Bank of America has already taken steps to assimilate reduced fees, for high-risk loans, into its underwriting structure. The bank plans to have it refinancing services in place within the next 45 days. Wells Fargo & Co. released a statement indicating it will some time to incorporate the changes into their system, and like JP Morgan, Wells Fargo has not given a date when it intends to start processing HARP 2.0 refinancing applications.

Initially, the FHFA announced the that some mortgage lenders would start taking refinancing applications as soon as December 1—even with some HARP 2.0 modifications not scheduled to go into effect until March 2012 or later.

New Guidelines Misaligned Programs

One unexpected consequence was Freddie Mac’s modification of its streamlined mortgage refinancing guidelines, for loans with loan-to-value ratios below 80 percent. Borrowers with mortgages underwater, because of a home equity loan, do not qualify for a HARP mortgage refinance. Some other categories of homeowners will need more documentation for determining their eligibility.

According to Lala, loan servicers will have a more difficult time processing Freddie Mac loans under the HARP program because with program changes, Fannie Mae and Freddie Mac eligibility requirements differ.

Lenders wants the Federal Housing Finance Agency to answer questions they have about the language on the Fannie Mae website, which addresses fraud, errors, misrepresentations and other issues regarding past mortgage underwriting activities.

In addition, bankers want more information on the FHFA’s position regarding borrowers with “unusually high” debt to income ratios, and the FHFA’s recommendation that lenders determine if these customers would benefit from a loan modification, as compared to mortgage refinance.

BOA Says Reports Inaccurate

Bank of America responded to recent reports by bond analysts Barclays Capital, Morgan Stanley and Nomura Securities, which inferred Wells Fargo and JP Morgan fared better than BOA in refinancing customers under the original HARP program. Nomura released a report that says from around August 2010, BOA’s high-rate loans prepaid at a slower rate than similar overseen loans at Well-Fargo. Morgan Stanley reported that recent data shows the same scenario for BOA compared to JP Morgan.

According to Lala, “We did a lot of these way early on” in 2009 while other lenders were “late to the game,” he said. “You have a finite group of borrowers.” He said BOA plans to bring on new workers to expand its mortgage refinancing services.





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