HAMP, HARP, and the Mortgage Struggle

Georgia veterinarian Kathy Kinney refinanced the mortgage on her four-bedroom, three-story home situated on 25 acres of land at a seven percent interest rate after 2006. But since the rates dropped, she has not been able to refinance again to take advantage of the lower rates.

“Every time I try to refinance, I am told that there are no comparable sales in my area within the last year,” Kinney said. “So, I am stuck with a mortgage at greater than seven percent.”

Refinancing your home and reducing your mortgage rate to get a lower interest is a great way to save money—sometimes hundreds of dollars can be saved. With rates sometimes as little as three percent, many homeowners have tried to refinance their homes in the past few years. But government red tape has stalled their efforts to take advantage of the lower rates.

Since the housing collapse in 2008, several programs have been created for people needing some relief from their mortgage payments. The Home Affordable Modification Program, which was part of the Economic Stabilization Act of 2008, was designed to help homeowners that were in foreclosure. In other words, you had to be in trouble to be able to take advantage of the program.

The Home Affordable Refinance Program, also known as HARP, was established in 2009 to help homeowners who needed to refinance but weren’t in danger of foreclosure. Many of those who applied owed more than their homes were worth or were close to being “underwater.” To be eligible for this program, the mortgage must be guaranteed or owned by Freddie Mac or Fannie Mae, the loan to value ratio must be 80 percent or more, and the homeowner must be current on the mortgage and have a good payment record for the past year.

Tony Miller is the branch manager of First Bank Mortgages in Rome, Georgia. He has seen the struggles of homeowners firsthand.

“I just had a customer whose loan wasn’t backed by either Fannie or Freddie,” Miller said. “He is upside down, but since his loan isn’t backed by either, he is not eligible for HARP as the program stands. Thus they are hung out having to continue paying the higher interest rate that their current loan is on.”

Senate Republican Bob Corker and Senate Democrat Mark Warner are proposing changes to mortgage plans that would eliminate Freddie Mac and Fannie Mae. The plan would create a privately capitalized fund. The fund would back the mortgages but would not hold them. If the legislation, which is said to have support from both sides of the aisle, passes, the two mortgage giants will be phased out and will not be able to take in new business.

Miller said this could help some homeowners like the one mentioned above.

“If they do indeed dissolve Fannie and Freddie that brings in the private investors with their guidelines,” Miller said. “So if the private investors come in with their guidelines, then maybe, just maybe we can help folks that are in the same position.”

President Barack Obama has given his support to the Corker-Warner plan and recommended creating the Federal Mortgage Insurance Corporation. The new corporation works much like the Federal Deposit Insurance Corporation, which backs banking transactions. According to White House officials, the program will not be funded by taxpayer money but through reduced default rates.

The President has created a page to outline his plan at the White House website. The page states that since the inception of HARP, only 1.5 million homeowners have refinanced with the program while 4 million are eligible. Under the new bill, 12 million will be available to refinance their homes.

The critical elements of the program include:

  • The elimination of paperwork, such as tax forms or appraisals. This also saves homeowners money on upfront fees.
  • Expanding the program to include everyone with mortgages backed by Fannie Mae or Freddie Mac.
  • Since banks will now be competing for the loans, homeowners should be getting the best rates available.
  • Homeowners with additional equity in the home will be eligible.

Getting the bill through Congress and to the President’s desk could take many months. In the meantime, those like Kinney, who is hoping for a refinancing plan to save money, are cutting back and saving.

“My mortgage officer is constantly looking for some way and he hasn’t found anything yet,” Kinney said. “I could save a few hundred dollars if I could refinance my home.”

This article was written by staff writer Kim Sloan. Her mission is to help fight your evil debt blob and get your personal finances in tip-top shape.

Copyright © 2013 Kim Sloan