For the past 2 months, I’ve spent 1-2 full work days per week researching and applying for a program designed to help underwater homeowners like myself. I still would not call myself an expert, but I know a lot about the program, and understand a few of the ways in which this program is not doing it’s job. These are just a few that I’ve uncovered while devoting an unfathomable amount of time to understanding why the process is so difficult.
Every lender has overlays, their own set of rules about the HARP program that are more restrictive than the official guidelines.
Case in Point: For 2-3 months, Bank of America had a freeze on approving homeowners with second mortgages for the HARP program. This rendered me ineligible, not by HARP standards, but by Bank of America standards.
2. Terms & Naming
There are a lot of programs, many with similar names, and each organization or lender has their own names, in some cases, making it even more confusing.
Case in Point: Bank of America told me that I did not qualify under the Making Home Affordable Program. That is the program that regulates HARP, HAMP and as many as 7 other programs. This was confusing, because I didn’t know if they were attempting to refinance me under HARP or HAMP (two very different programs). When I asked for clarification, and said I wanted to refinance under HARP, they said HARP was the same thing as the Making Home Affordable Program. I still don’t know if they had me in the right program.
3. Knowledge Barriers
Lender representatives and community organizations don’t always have all the facts, or don’t understand them, but will tell you that they do.
Case in Point: I spoke with 2 different people at the Community Neighborhood Housing Agency in St. Paul to get assistance in applying for the HARP program. The 2nd person was extremely helpful and understood the program very well. She said I should qualify. The first person I spoke with, at the same organization, said I did not qualify and was not underwater (which was extremely incorrect). When I asked her to add the numbers again, because I was sure I was underwater, she aggressively asserted that I was NOT underwater. This is an organization that helps homeowners understand programs like HARP every day of the week.
4. Confusing or Vague Guidelines
Many guidelines in the HARP program are vague, allowing for lenders to misinterpret or use vague areas to their advantage. In fact, the program itself, though “strongly encouraged” is optional to any and all lenders.
Case in Point:
- Lenders who hold homeowners’ 2nd mortgages are encouraged, but not required to subordinate the loan. (If they don’t subordinate, HARP refinance is not possible for these homeowners.)
- The “No Appraisal” rule is not required, and leaves it up to the lender’s discretion as to whether it is needed.
- In lieu of an appraisal, the way a home’s value is determined varies widely and can be pulled from a variety of sources (including zillow.com, estimated tax value and lender-generated data, leaving homeowners vulnerable to errors and inconsistencies.
- The financial documentation checklist varies between lenders, organizations and official guidelines. Some of these are extremely time-consuming to produce (especially for self-employed people), and may or may not be required once the process starts.
5. Program Implementation Delays & Changes
Guidelines take too long to implement (4-5 months from release date), and historically, will change before the lenders finally implement the program. This lessens the amount of time that homeowners can take advantage of the program, and in some cases requires applicants to re-gather documentation.
Case in Point: When the program was officially released, I took several half days off to talk to gather federal tax returns, year-to-date monthly expenses (monthly profit and loss), homeowner’s insurance statement and other documentation. This was outlined in various places online, and I was told to gather this information from the Community Neighborhood Housing Agency.
Some items took hours to prepare, and I discovered later would not be needed (for example, year-to-date monthly expenses). Being freelance, I was able to juggle this, though it was not easy. Not everyone is in a position to keep taking off work to gather and regather documentation during work hours, only to discover later it wasn’t needed in the first place.
In an article entitled Foreclosure Relief? Don’t Hold Your Breath, (December 24th,2011) the NY Times reported on a new program to help homeowners with foreclosure reparations.
“Throughout the foreclosure crisis, Washington has done little to help people hang on to their homes. All those programs that were supposed to help — HAMP, HARP, Hope for Homeowners — have mostly failed.”
More than a helpful link on information about the HARP program itself, this link is provided to show the overall messiness of all of these programs. For anyone who is going through the foreclosure process (or is thinking about it), in some cases these programs can hurt, more than they help. (So, do your research.)
“None of this surprises Ms. Cohen or others familiar with the regulator. “This is the O.C.C . that we’re talking about,” she said. “It has a long record of favoring banks over homeowners.”
Today I called a mortgage broker (1 of 12 personal recommendations), and talked at length about refinance, HARP, HARP 2 and lending practices in general. I told him that Bank of America offered me 4.5%, and wondered, is that good enough? Could he (or another lender) do better?
The answer was not a simple one, but it was informative. Here are some of the highlights:
Qualifications Vary From Official HARP Guidelines
All lenders have “overlays,” additional rules that they impose. In other words, each lender can have their own subset of more guidelines that are more restrictive than the official HARP guidelines released by the government.
Automated Underwriting Appraisals Available Mid-March, 2012
Fannie Mae appraisals via automated underwriting will be available mid-March, 2012.
This is significant because when I went to US Bank to ask about refinance through the HARP 2 program, they told me I would need an appraisal and that it would need to be at least $140,000 in order to qualify for the program. What US Bank didn’t tell me is why, and what Mortgage Broker #1 explained was two-fold:
- no matter what the program says, lenders can request an appraisal
- Fannie Mae appraisals won’t be available to other lenders until mid-March, so all lenders (unless it is the current loan holder) will require an appraisal until mid-March, 2012 (approximately)
Pricing on HARP 2 Is Not Available Until Mid-March, 2012
Pricing is not available for HARP 2 yet, so no one knows what the pricing will be. Press releases say it’s supposed to be cheaper, but it’s impossible to know and these programs are notorious for key guideline shifts between the official release (November 15, 2011), release to lenders (November 28, 2011) and actual implementation by the lender (originally thought to be December, 2012, but now estimated at mid-March, 2012).
“We’re assuming that HARP 2 won’t require appraisals as they are saying, but it could fold out with footnotes and augmentation.”
- The Mortgage Broker
If you have to get an appraisal, they are good for 90 days. They are not accessible to any one else, except the lender you share them with. (So if you get an appraisal and it indicates that your home is not as underwater as you think it should be, you can go to another lender who does not require an appraisal, and try to reapply.)
Watch for Gotchas
Sometimes at closing you’ll be asked to pay as much as $2800 to reestablish escrow. Even if all the closing costs are rolled in. You should ask your lender about this, and be prepared to write a check, just in case.
Lengthy Resubordination Process
Some lenders (ahem, US Bank) take an unreasonably long time to resubordinate 2nd mortgages. US Bank is known to be the worst, taking as much as 3-4 weeks. The 1st mortgage has to be approved before resubordination and if your interest rate is locked in at 60 days, but the 2nd mortgage lender takes 61 to resubordinate, you can lose your locked interest rate.
Your 2nd mortgage lender can force you to do an appraisal. If you get an appraisal that does not accurately represent the value of your home, you can lose the HARP refinance, and you will have to pay for that appraisal. (Which is $425 through US Bank, higher than most.)
Alex Stenback is a Mortgage Broker in Minnesota. His blog Behind the Mortgage is as informative and thorough as he is conversationally.
Today, Bloomberg News, a multinational financial news organization, published an article about the HARP program.
No Relief for Homeowners Sut Out by U.S. focuses on the stories of several people (myself included) who have had difficulty taking advantage of the record-low percentage rates that could help alleviate excessive financial burdens.
My attempt to refi through my primary home lender, Bank of America, resulted in 3 different refi outcomes within a 2 month period under the same program. (Outcomes were: I did not qualify, then was offered 5.375%, then 4.5%.) In other words, not even the lenders who distribute the programs understand the guidelines.
Three times in the last month, I’ve applied for HARP 2 through my current lender, Bank of America, and received 3 outcomes.
Today I heard that HARP 2 was not available through Bank of America until December 1st, 2011. So, I called back to see if, now that HARP 2 was available, if I would get a more appropriate outcome.
On my third attempt, Bank of America told me that as of December 13 (today’s date), they have not released the HARP 2 program, and that they “do not have a date as to when it was going to show up.”
In all 3 refinance attempts I specified that I wanted to refinance through the new HARP 2 program, and none of the 8 or more people I spoke with mentioned that HARP 2 had not been released. According to the most recent representative I spoke with, each attempt to refinance through Bank of America would have been through the original HARP program. But each attempt yielded dramatically different results.
3 Different Outcomes Breakdown
Here’s the breakdown of the 3 attempts, starting with my current scenario, for reference, all using 30 year fixed as a consistent baseline.
Current 1st Mortgage / 6%
$ 988 Principal
$ 300 Escrow
$1288 Total monthly payment
1st Attempt — Not Approved
Early November, 2011
I was not approved to refinance through the HARP program at Bank of America, my current loan holder.
2nd Attempt — 5.375%
November 21, 2011
1. I qualify for the loan at 5.375, 30 year fixed, but the percentage is not that great, they say, because of my 2nd mortgage.
2. While the appraisal fee of $425 not required, there are still over $3000 in closing costs.
3. It will take approximately 2 years to recoup the refinance costs.
$ 382 1/4 of a discount point
$1175 Bank of America’s total fee
$1567 3rd party fees
$3124 Total closing costs
$ 460 Out of pocket cost
$ 856 Principal
$ 264 Escrow
$1120 Total monthly payment
$ 168 Total monthly savings
3rd Attempt — 4.5%
December 13, 2011
1. I qualify for the loan at 4.5%, 30 year fixed.
2. Closing costs are $691 less than the second attempt.
3. It will take 4.6 months to recoup the refinance costs.
Discount points are not mentioned in the conversation.
$191 Discount Points
$866 All lender fees (Bank of America’s total fee)
$1567 3rd party fees
$2433 Total closing costs
$ 0 Out of pocket cost
$ 775 Principal
$ 264 Escrow
$1040 Total monthly payment
$ 248 Total monthly savings
Loan Amount Breakdown
$148,484 Current total loan amount
$1,380 Current escrow balance
$153,000 New total loan amount
$1887 New escrow balance
$4516 Total loan increase
The third attempt looks like what I should have been offered all along. I’m happy to finally have received a more appropriate interest rate, but am more confused than ever about actually Making Sense of HARP.
Bank of America holds my first mortgage for $148,000 at 6%. US Bank holds my second mortgage for $44,000 at 8.49%.
If you’ve read past entries, you’ll know that I refinanced with US Bank 5 years ago at that rate because they offered me a loan that would allow me to refinance through US Bank when interest rates dropped, without closing costs. Then the economy crashed and I was stuck with that rate, because I had no equity and they said “No” on the refinance when rates dropped. Adjusting that loan is imperative, but it may not be possible, so I continue to focus on the first loan via the HARP program.
At the end of November, Bank of America offered me 5.375% interest (currently at 6%) with $3000 in closing costs to refinance under the new HARP program, which did not fit with the 4-4.5% average interest rates we’ve all been hearing about.
I went to US Bank to see what they would offer on either my first or second mortgage.
Interest Rates Over 4.5% Should Be Investigated
US Bank indicated that there was absolutely nothing they could do about the 8.49% loan I currently have with them on my second mortgage. That is the standard response I’ve gotten over the last 5 years. But they did think that Bank of America was in error for the interest rate they offered, possibly due to not having received the new guidelines. However, Bank of America said they had received them, and 2 weeks before the guidelines were distributed, Bank of America turned down my refinance. The lender at US Bank said that he thought he could get me 4-4.5%.
Appraisal Needed When Refinancing With Another Lender
I could get a lower interest rate with US Bank, but the lender told me that I would need an appraisal at the cost of $450. I reminded him that with HARP 2, an appraisal is no longer needed. He pointed out that the appraisal process is waived only if the loan-holder refinances with the original lender.
In the official HARP Q & A document, also available for PDF download in HARP Basics, appraisal is contingent on AVM (automated valuation model), which is extracted from Zillow.com or your home’s Estimatesd Tax Value. (And possibly other sources that I have yet to learn about.)
Cap or No Cap?
The US Bank lender also told me that there is a 105% loan-to-value restriction in place in order to qualify with another lender.
If my appraisal come back at $145,000, I would be approved for a $152,000 loan.
It’s unlikely the appraisal would come back that high, but that is approximately the minimum appraisal amount I would need in order to cover my first loan.
If my appraisal came back at $135,000, I would only be approved for a $141,000 loan: $8,000 less than I would need.
The lender I spoke with at US Bank discouraged me from doing the appraisal, and told me I should return to Bank of American and reattempt with a different person there to try to get a better rate.
Official HARP Fact Sheet and US Bank Qualifications Discrepancy
Below is an excerpt from the HARP Fact Sheet, available for PDF download in the HARP Basics section of this blog. The Fact Sheet indicates that the program will continue to be available for loans with LTVs above 80%. Where did the 105% LTV come from that US Bank quoted me?
What I discovered was that the 105% LTV is only a requirement when the new loan is an ARM. Was the US Bank lender attempting to put me in an ARM?
2 days ago, in an article entitled “A New Shot of Mortgage Relief,” the NY Times reported that interest rates conventional mortgage rates are averaging around 4%. 70% or the 22 million borrowers who are eligible for the HARP refinance program have 5% interest rates or higher.
To recap, my current interest rates are 6% and 8.49% fixed – and Bank of America offered me a HARP refinance at 5.375% with $3000 in closing costs on the 6% loan. If the HARP program is refinancing homeowners who have 5% interest rates, why are they offering me 5.375%, only .625% lower than my current 6% interest rate? (Their explanation was that it was contingent on me having a 2nd mortgage through another lender.)
The NY Times article highlights some critical viewpoints about the HARP and HARP phase 2 revised programs. Among them, Mr. Compton, a public transportation planner and homeowner is quoted in this article with the “…should be a ‘perfect fit for me.’” sentiment.
“It angers me quite a bit,” said Mr. Compton, who added that unlike other borrowers, he never took out a home equity loan during the boom and has consistently paid his bills. The refinancing program, he said, should be “a perfect fit for me.”
It’s a statement that I have been heard to say verbatim on many occasions about the HARP program. If my situation is the typical case study that HARP is using to illustrate it’s action plan, then it’s not doing it’s job.
2 HARP 2 program issues:
- The program is not standardized between lenders.
Lenders are able to created their own sub-criteria for HARP qualification. In other words, they can customize the program to suit their best interest, rather than the best interest of the people the program is designed to aid.
It’s not enough to tell American’s that this program exists to help people manage their continuous submersion into underwater status. We need to see the number of underwater homeowners who are helped (or not helped) by the program, not just in the NY Times, but in the local media, and the Occupy Wallstreet protests. This has a direct affect on how the American public views people who foreclose. Many still believe that foreclosures can be prevented if people work harder to access programs. In fact, the programs are extraordinarily complicated, narrow in scope and hard to access. And sometimes cost homeowners upwards of thousands of dollars, sometimes with no success.
- Standardization on how lenders determine the value of your home without appraisal is ambiguous.
It’s great that homeowners no longer have to pay $300-$400 for an appraisal every time they attempt to refinance. Unfortunately, lenders have found a way to use this to their advantage.
Case in point: The Community Neighborhood Housing Agency told me that lenders can look at Zillow.com or your Estimated Tax Value to assess the value of your home in order to determine if you qualify. On Zillow.com, my home is valued at $124,900. My Estimated Tax Value is $40,000. When I was gathering information on HARP refinance through Bank of America, they told me that Fannie Mae valued my home at $178,000 (a price tag I’ve never seen associated with my home since the housing crisis started). When I asked if this would disqualify me for the HARP program (because they might not technically consider me underwater at this value), they said no – you should be fine. But I’m skeptical that after I pay the mandatory $460 cash closing fee (the other $2540 rolls into the loan), that they would take the $460 and not approve me for the final paperwork.
In November of 2011, NY Times wrote a story on a report by Bloomberg News regarding the Fed Rescue.
The central bank provided emergency loans, asset purchases and other aid totaling roughly $7.8 trillion during a two-year period ending in March 2009, easily the largest component of the government efforts to bulwark the financial system.
I called Bank of America on Monday, November 22, 2011 to see if they would refinance me through the HARP program, now that they had the official documentation.
The answer was “Yes!” and I swear my heart was pounding as I got closer and closer to what seemed like the impossible after all these years.
First, The Good News
1. They pulled my credit score and it was excellent.
785: Middle (they would be using this score)
2. Bank of America verified that I do not have LPMI.
Now, The Questionable News
1. I qualify for the loan, but the percentage is not that great. They say, because of my 2nd mortgage.
2. While the appraisal fee of $425 is “waived” (in other words, not required), there are still significant closing costs.
$ 382 1/4 of a discount point
$1175 Bank of America’s total fee
$1567 3rd party fee
$3124 Total closing cost
$ 460 Out of pocket cost
This is what they offered:
30 year fixed – no prepay penalty
5.375% apr 5.490
1/4 of a discount point
$ 856 Principal
$ 264 Escrow
Current 1st Mortgage
30 year fixed – no prepay penalty
$ 988 Principal
$ 300 Escrow
$168 Monthly Savings
1. If I pay the $460 closing cost, is it possible that Bank of America could still deny the ReFi? What happens to that $460?
2. $3124 in closing costs will take 2 years to recoup. I suppose it’s worth the $120/mo advantage I’ll have on my mortgage, but I was really hoping for $200/mo less, and lower closing costs.
3. Fannie Mae values my house at $178,100. What? My Est. Tax Vaule is $140,000. Zillow is $125,000. My concern is that I will pay the $460 and even though Bank of America says I still qualify, I worry that later in the process they will say I am not underwater when they see that I owe $148,000 on my primary loan and $44,000 on my 2nd mortgage.
Documentation Required for Self-Employed
1. CPA will need to send a letter verifying:
- How long I’ve been self employed
- Name of the business, address, phone number and percent ownership
2. A copy of the declaration page from my home owners insurance.
They say there is no need to document year-to-date P&L.
Next Up: Mortgage Brokers – Can They Do Better?