Amid the housing market rebound, talk for a HARP 3 program is growing louder.
The rumored program was born January 2012, conceptually introduced in the president’s State of the Union address. Since that date, the notion that “every responsible homeowner” should be able to refinance to today’s low rates has gained traction.
In some form, it’s likely that HARP 3.0 will pass soon. The government is calling it #myrefi.
HARP 3.0 : Help For Non-GSE Mortgages
HARP 3.0 is not yet passed (and may never pass) but momentum for some version of a HARP 3 program is growing. It makes for some interesting talk. HARP 3.0 would target homeowners whose mortgages are specifically not backed by Fannie Mae or Freddie Mac.
This is a big deal because, although the Fannie Mae-Freddie Mac-FHA triumvirate controls more than 90% of today’s new mortgage originations, that wasn’t the case from 2001-2007. Last decade, non-GSE lending was a major part of the U.S. housing market.
For example, Federal Reserve data shows that Alt-A mortgages accounted for 27.5% of mortgage originations in 2005. Today, by current rules, each of these homeowners is locked out from the Home Affordable Refinance Program. HARP 3.0 would allow these Alt-A customers to (finally!) refinance their home loans.
In addition, there were lots of “A Paper” mortgages that went to sub-prime investors last decade because, at the time, the sub-prime market offered lower mortgage rates than the conforming market did. Ludicrous, but true.
Conforming, 30-year fixed rate mortgage rates were 5.50 percent in mid-2005. Sub-prime 30-year fixed rates, by contrast, were a quarter-point lower at 5.25%.
Which would you have taken?
And, lastly, HARP 3.0 would help homeowners with jumbo mortgages that, in today’s market, would not be jumbo mortgages.
Last decade, before conforming loan limits were raised to $625,500 in “high-cost areas” throughout California, Virginia, Maryland, and New York, for example, homeowners who bought or refinanced were relegated to non-conforming loan products — loans that met typical underwriting guidelines but that were too big for Fannie Mae or Freddie Mac to purchase.
After home values fell, although their mortgages met Fannie Mae loan standards; and, although their mortgages were within Fannie Mae loan limits, these homeowners were unable to use HARP 2.0 because their mortgages weren’t backed by the government. They were held by a bank, such as Wells Fargo or Bank of America.
With HARP 3.0, these “high-cost”, jumbo homeowners would get the chance to refinance.
HARP 3 Candidates
We don’t know when HARP 3.0 will be made official (if ever). Nor do we know who will qualify for HARP 3.0 when it’s passed. However, based on HARP history and talk from Washington, D.C., we can fathom a few guesses.
Here are a few “borrower types” that HARP 3.0 is expected to target :
- A self-employed person who used stated income loan for the original mortgage, and can verify their current income via federal tax returns
- A “prime” borrower who used a sub-prime mortgage because mortgage rates were lower and/or fees were less as compared to a conforming one
- A jumbo mortgage homeowner who lives in a “high-cost area” whose original mortgage was for between $417,000 and $625,500
- A wage earner who used a stated income and/or stated asset mortgage for convenience
- Sub-prime borrower who has paid mortgage as agreed and can verify income and assets
- An Alt-A borrower whose FICOs were low at date of origination, but have since improved
There are literally millions of U.S. homeowners who would meet HARP 3.0 eligibility standards, opening today’s low mortgage rates to all of them.
HARP 3.0 Info came from: http://themortgagereports.com/8910/harp-3-harp-2-for-alt-a-sub-prime-jumbo-non-conforming-mortgage