US Housing Crisis: New HARP Refinance Program Guidelines Miss the MarkPosted: October 24, 2011
It’s now almost 5 years after the US housing crisis began and millions of homeowners have lost their homes and millions more are underwater on their mortgages and today the US Administration offers yet another “lifeline” to underwater homeowners, new guidelines for the Home Affordability Refinance Program (HARP). But, the new guidelines and the HARP program still miss the mark and the problem.
As reported today by CNN and CNNMoney, the new guidelines will allow homeowners with mortgages that are 25% above the value of their home, to refinance into a lower interest rate mortgage thereby, reducing their monthly payment and therefore, reducing the number of foreclosures and giving the homeowner more money to spend.
Are they kidding?
Assuming a homeowner can qualify for the program, ie. has a conventional not a jumbo loan, and has not missed more than one payment, etc, how does this help the millions of struggling homeowners who are more than 25% underwater and those increasing numbers of jumbo homeowners losing their homes when the average decline in home values is at 53%? And, the millions that have missed more than one payment?
Moreover, do they actually believe that a struggling homeowner will spend their “reduced” amount rather than save it given this uncertain economic and job climate? What planet are they living on?
Has anyone done the math on the cost of refinancing vs. the amount saved in a reduced monthly payment? Generally, it costs about 2-3 % in loan refinance fees and those fees are added to the loan balance. So, why would a struggling homeowner agree to take on more debt on a depreciating asset? Maybe, they can kick the can down the road again, but, haven’t we done enough of that.
Reducing the amount of the monthly payment is not the solution. The HAMP loan modification program, another failed “lifeline” program, and its high default rate has already taught us that. The loan balance is the problem.
No doubt, this isn’t the HARP music, the lenders wanted to hear, but it’s time to play a new tune.
Simply my opinion, what say you?