Getting HARP’ed and the SRM

FHFA_Mel_Watt

PartnerOwn attended the Federal Housing Finance Agency’s Getting HARP’ed event in Chicago, Illinois on July 8th.  It included FHFA Director Mel Watt and representatives from The Treasury Department, Fannie Mae, Freddie Mac, Wells Fargo and Neighborhood Housing Services of Chicago.

FHFA_Panel

HARP is federal program that helps current borrowers lower their interest rates on the loans, even if their home is in negative equity.  For borrowers, their loans must meet the following criteria (note that this has changed from its initial roll-out):

  • Owned or guaranteed by Freddie Mac or Fannie
  • Originated on or before May 31, 2009
  • Have a loan to value of greater than 80%
  • Be current on your mortgage with no 30-day+ late payments in the last 6 months and no more than one late payment in the last 12 months

The event advertised the HARP program as free money.  This is because HARP takes an existing loan and lowers its interest rate.  Since programs like HARP have helped borrowers reduce their monthly payments, and we support the work of the federal government to help homeowners who can save money, we want to highlight the HARP program and are happy to see them engage with local communities as they did this week.  The FHFA says that 35,000 people alone in the Chicago metropolitan area could receive this support but still do not.  It is hard for anyone to beat the interest rates that the HARP program provides.  And we encourage people to consider HARP if they are looking to refinance their existing mortgage and want to take advantage of the historically low interest rates.

In spite of HARP’s benefits, HARP also provides an opportunity for us to reflect on the benefits of our product, the Shared Responsibility Mortgage.  Effectively, PartnerOwn believes that reduced monthly payments should be built into the mortgage contract from the beginning to protect homeowners in market downturns.  HARP is a federal program that came about after the crisis.  It required federal approval and has had changing standards as it has tried to impact more and more homeowners.  The need for a program like HARP speaks to the problems of the original mortgage contract itself, and that is why we want to make the SRM a standard so that one-off programs like HARP will not be needed in the future.

HARP does have its limitations.  It can provide borrowers with a lower interest rate, but there is no possibility of principal modification.  Basically, if you and your family bought at the height of the bubble, and the market subsequently went down through no fault of your own, you are still on the hook for all of that debt, albeit at a lower interest rate.  The Shared Responsibility Mortgage lowers a borrower’s monthly payment according to changing market conditions, however.  Our monthly form of principal modification has been cited to be  more effective in providing assistance to homeowners than interest rate reductions.  Further, we believe that the intervention used to help homeowners keep current on their mortgages should be the most effective, and investors should expect those modifications as well to keep their borrowers able to pay their obligations.

For more about the efficacy of principal modification, you can check out this article from the Woodstock Institute about its relevance for the Chicagoland area.