How HARP will impact the Residential Mortgage World

Usually I write about SBA related issues here.  In fact, I am updating two of my White Papers on SBA related topics.  We need to stimulate small business growth if we want the private sector to pick up the slack and bring down the stubbornly high unemployment rate.

But there’s about to be something a bit larger than a wave and smaller than a tsunami hitting housing, and the dolllars that will be freed by sensibly lowering peoples’ payments on their homes is going to trickle down to the Nation, and that is not a “Laffing” matter.

As soon as the administrative regs come out (we expect Dec 1), FHA, FNMA and FHLMC refinances will get a lot easier.

It’s the Home Affordable Refinance Program, second edition, aka HARP II. Here are the HARP II highlights, courtesy Stewart Title:

  • Requires borrower to be current on their loan payments—no other requirements
  • Makes no difference how far underwater their home is
  • Will eliminate appraisals and extensive underwriting requirements for most borrowers
  • FHA, Fannie Mae and Freddie Mac have agreed to eliminate some fees in some circumstances
  • CoreLogic estimates 20 million homeowners could qualify—one out of four homeowners in the country
  • At a $400 per month loan payment reduction ($4,800 per year pre-tax), this potentially could put $96 billion annual in consumers pockets without increasing U.S. government or consumer debt 1 cent – consumers spending that would spur an economic recovery
  • Could potentially keep one out of four distressed properties off the market significantly reducing shadow inventory and expediting a recovery in the housing markets
  • Federal government will collect more income taxes as homeowners will have less interest deductibility
  • Since none of these existing loans had prepayment penalties, all current investors in those loans knowingly had the potential of repayment at any time
  • Economists estimate that these changes will allow an added 1 to 1.6 million homes to be refinanced
  • Assuming a current loan of $200,000, then the HARP modifications would increase 2012 residential lending volume by $200 to $320 billion
  • Prior to this announcement, Fannie Mae had forecast 2012 residential lending to be $958 billion comprised of $467 purchase volume and $491 billion refinance

About Timothy E Thomas

Senior business development officer, CENNTENNIAL LENDING, metro Denver. Responsible for SBA 504 production and conventional small balance commercial lending. Centennial is a credit union service organization owned by 13 credit unions in Colorado and Wyoming. Former SBA-USDA desk manager and Registered Representative for Isaak Bond Investments, Inc., a municipal broker dealer and market maker in SBA and USDA guaranteed loans and pools; taxable and tax exempt municipal bonds and agency securities serving institutional investors for over 33 years, member SIPC, FINRA.
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