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Mortgage Insurance Companies Ease Lender HARP Concerns

Written By:
November 28, 2011 at 3:17 AM

With the Home Affordable Refinance Program (HARP) changing its original standards, lenders have been concerned about certain aspects of the program.

The specific feature that has had lenders shaking in their boots was the possibility of “loan put back.” Before revisions were made to HARP, homeowners had to complete the appraisal process before their refinance could be processed.

Problems arose because the majority of borrowers seeking refinance were considered to be underwater in their mortgage. Being underwater in your mortgage means that you owe more on your loan than what the house is worth.

When underwater borrowers ran into the appraisal roadblock they were denied refinancing under HARP, which sent many people into the foreclosure pipeline or continuing to struggle to make ends meet.

Last month President Obama and the Federal Housing Financial Agency (FHFA) updated HARP in an effort to broaden the scope of eligible borrowers, especially for those who are underwater.

While great news for homeowners, lenders were worried that not having a correct appraisal would put them at risk of violating Fannie Mae and Freddie Mac underwriting guidelines.

Experts contend that trying to ascertain an accurate home value after the housing market free fall can be extremely tricky if not impossible.

Lenders who violate the guidelines are put in the position of having to repurchase faulty mortgages (loan put-back)--a practice that could become extremely expensive.

However last week, Fannie Mae and Freddie Mac said that they would alleviate the risks associated with refinanced loans in an effort to reach more underwater borrowers.

Under the new guidelines, "The lender is not responsible for any of the representations and warranties associated with the original loan."

Mortgage Insurance Companies Step Up to Support HARP

Although new guidelines put lenders in the clear, mortgage insurance companies like United Guaranty, Genworth Financial and Radian Guaranty are coming forward to quell the worries being expressed by some lenders. Insurers said that they will back lenders who are concerned about underwriting inaccurate mortgages in an effort to allow more homeowners to keep their homes.

Radian Guaranty president Teresa Bryce Bazemore said that participating in HARP is an extremely important piece to the housing market recovery process.

"Continuing to participate in HARP is the right thing to do for our communities, the recovery of the housing market and improvement of the overall economy. These are homeowners who have paid their monthly mortgage payments and are committed to their homes, yet owe more than their home is now worth."

"Refinancing through the HARP program will provide homeowners with greater financial flexibility, significantly reducing the likelihood of default -- a clear win for the homeowner and for Radian," Bazemore added.

United Guaranty CEO Eric Martinez said, "We are committed to helping homeowners understand their refinance and modification options for their mortgages. In fact, United Guaranty is a leader in the industry in successfully modifying loans and continuing to insure them.”

Martinez said that his company has helped 17,037 families receive HARP modifications since its inception in 2009. “As an industry leader, United Guaranty views this thoughtful execution as our responsibility to the health of our industry and the safety of our customers."

Like United Guaranty, Genworth Financial has supported HARP from the beginning, helping more than 26,000 borrowers lower their mortgage payment by an average of nearly $200 a month. Rohit Gupta, chief commercial officer for Genworth Mortgage Insurance said, "We are proud to participate in this initiative, and believe it is another important step on the road to housing recovery."

Lenders Hesitant to Participate in HARP 2.0

Until recently, some lenders have been hesitant about whether they would participate in the new program. Many were still concerned they would be hung out to dry because of mismatched appraisals.

Before Freddie Mac and Fannie Mae disclosed full details of HARP 2.0, lenders were generally against participating in the program. For example, before Freddie and Fannie revealed all the specifics of HARP 2.0, American International Group Inc. (AIG) told lenders it could not offer the same protections on faulty loans that competitors provided for HARP.

However, after the full program details were disclosed AIG changed it’s tune. Cliff Rossi, executive-in- residence at the University of Maryland’s Robert H. Smith School of Business and a former risk officer at Citigroup Inc. said, “They were the odd man out. I think they looked around and said, ‘Uh oh, we’re out here hanging out on our own.’”

Brian Gould, AIG’s unit senior vice president of loss management said in a statement on Monday, “United Guaranty will responsibly expand our already- robust participation in the program by waiving representations associated with the original loan file for a majority of our portfolio.”

However, not all lenders are as nervous about HARP. Stonegate Mortgage Corporation announced on Monday that it will immediately begin providing refinance opportunities through HARP.

Jim Cutillo, CEO of Stonegate said, "We are convinced that HARP will help revitalize the housing market by creating additional stability through previously nonexistent refinancing opportunities. Our primary focus at Stonegate is to provide an unparalleled customer experience and be the Lender of Choice for borrowers. Therefore, we constantly work to identify ways for our customers to save money and take advantage of any regulatory changes. As an early adopter of HARP, we believe that we can provide a tremendous benefit to many of our customers."

RoundPoint Mortgage also enthusiastically joined the HARP 2.0 bandwagon last week. In a press release the company detailed specifically how homeowners will benefit from refinancing through the program: “A homeowner with a 30-year mortgage of $200,000 and who currently pays a 6% interest rate/payment of $1,199 per month would save $244 a month by refinancing to a 4% percent 30-year fixed rate, excluding taxes, points and refinancing costs.”

Ed Conarchy, a banker at Cherry Creek Mortgage Company said, before HARP 2.0 details emerged, "I think that's going to encourage lenders to do more HARP refis.”

What Should Borrowers Do Now?

According to Shawn Kaplan of Access National Mortgage, borrowers should act immediately. “If you qualify, you’re going to win,” he says. “A lot of people are going to find out about this … you need to get on it before it clogs up the pipeline.”

Borrowers should first shop mortgage lenders to identify the mortgage companies who are participating in HARP 2.0 and then determine whether your loan is backed by either Freddie Mac or Fannie Mae.

Be sure that you are current on your mortgage payments for the past six months and confirm that you’ve never used the previous HARP program. Loan delinquencies and previous HARP refinances automatically disqualify you from the program.

“Yes, it is very similar to what we did before; however, there is a major difference. This is only (available) to people who have not missed a mortgage payment,” Kaplan said. “If they can make a mortgage payment at $900, they can make it at $700.”

Consult with your lender regarding specific documentation and paperwork needed for the application process.

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