The latest on HARP is that the theory of the program and the actuality of it are, as in so, so many other things, not even close to one another.
- No LTV limit! Reality: all of our lenders have capped the LTV at 105% on any loan that they don’t already own. There are rumors out there of lenders that haven’t done this, but I have yet to speak to anyone that has closed a loan with any of them.
- No CLTV limit! Reality: CLTV (that’s the first and the second together) is capped at 110%, except for loans already owned by the new lender.
- No credit requirements! Reality: straight hogwash.
- New underwriting software will incorporate all the new HARP guidelines! Reality: No. Not really. It is true that the new update no longer outright rejects the file. It issues, however, an “expanded approval”, which only one lender even pretends to take a look at (and, see above, no one I know has closed a loan with them). The rest reject that outright.
There is some good news, pale and far off as it is. There are groups out there that see a big opportunity here to cut off some of the big lenders’ noses, and are putting together packages of loan money that will take some of these loans that the others are unwilling to deal with, despite federal assurances that everything will be okay. Those are an indefinite time away, but possible.
To be fair, the real difficulty is not Wells Fargo and Chase. The real difficulty is Fannie and Freddie. They say – they’ve been ordered to say – that they will buy these loans (since they already own them, that’s not a loser for the taxpayers), but in fact they do not always do that. They look at the smallest ambiguity in the loan file as a reason to reject its purchase, which subjects the investing/servicing lender (Wells, Chase, BB&T, whoever) to the risk of having to hold the loan on its books. This is not what they want to do. They therefore push that “error” back on the originating entity – and that’s us. So we have a $250,000 risk as well. As you might guess, that’s a catastrophe waiting to happen. This gums up the entire system, and it all hangs on Fannie and Freddie. If they play ball, then everyone will get into the act and HARP will be successful. If not, then, not. Some way to go before that shakes out one way or the other.
Rates continue good, so the worth of doing this is not gone yet, if you can hang on until the lenders get less skittish.
And there is one more thing. We have been playing this game for ten years now, and we have some tricks. On a small but significant number of files, we’ve been able to get the underwriting software to tell us what we have to do to get the file approved. In some cases, we’re looking at accumulating cash. In others, it’s paying down debt. Regardless, we at least have a road map and can offer guidance as to what it will take to get the file to close. All is therefore not lost.
Hang in there. We will.
