HARP 2.0 Briefing Paper for Credit Unions (Whitepaper)


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HARP 2.0 was announced by the Administration and the Federal Housing Finance
Administration (FHFA), the GSE regulator, in October 2011. While not a new program,
HARP 2.0 turbo-charges the Home Affordable Refinance Program (HARP), announced
in March 2009. The expansion helps underwater homeowners who owe significantly
more on their mortgage than their homes are worth. This Paper focuses on how to
originate a HARP loan for borrowers with LTVs greater than 80 percent, how changes
in solicitation rules can help you expand the market you serve, and how you can immediately
implement HARP in your organization.For more information, go to www.nafcu.org/primealliance.

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HARP 2.0 Briefing Paper for Credit Unions (Whitepaper)

  1. 1. HARP 2.0 Briefing Paper Prime Alliance Solutions, Inc. February 2012 Dan Green, EVP Credit Union Solutions dgreen@primealliancesolutions.com (608) 770-7861© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 1
  2. 2. HARP 2.0 Briefing PaperPrime Alliance Solutions, Inc.February 2012
  3. 3. Table of ContentsThe HARP 2.0 Program 4Important HARP Dates 4Three Important Things to Know about HARP 2.0 5Executive Summary 6HARP History / Background 7The HARP 2.0 Population 8HARP Marketing Guidelines 8How are other lenders positioning for HARP 2.0? 9Summary 10
  4. 4. The HARP 2.0 ProgramHARP 2.0 was announced by the Administration and the Federal Housing FinanceAdministration (FHFA), the GSE regulator, in October 2011. While not a new program,HARP 2.0 turbo-charges the Home Affordable Refinance Program (HARP), announcedin March 2009. The expansion helps underwater homeowners who owe significantlymore on their mortgage than their homes are worth. This Paper focuses on how tooriginate a HARP loan for borrowers with LTVs greater than 80 percent, how changesin solicitation rules can help you expand the market you serve, and how you can imme-diately implement HARP in your organization. Important HARP Dates March 2009 March 17, 2012 HARP Announced Fannie Mae DU Refi Plus™ HARP enhancements implemented. October 2011 HARP 2.0 Announced June 1, 2012 New product: 15 year FRM, Refi Plus December 1, 2011 LTV > 125% (MBS and Whole Loan) Fannie Mae Refi Plus™ HARP loans with application dates on or after this New product: 15 year FRM, Refi Plus date are eligible for purchase. LTV 105.01 through 125% (MBS and Whole Loan) Waiver of certain lender representations and warranties. New product: 30 year FRM, Refi Plus LTV > 125% (MBS) January 1, 2012 Loans purchased on or after this December 31, 2013 date are eligible for reduction and HARP Ends: loans must be originated elimination of Loan Level Price on or before. Adjustments (LLPA) and Adverse April 30, 2014 Market Delivery Charges (AMDC) The last date Fannie Mae will make February 1, 2012 whole loan HARP purchases. New product: 30 year FRM, Refi Plus™ LTV > 125% (Whole Loan) Source: Fannie Mae Selling Guide Announcement SEL-2011-12. For more detailed information about marketing and making HARP 2.0 loans to your members and potential members, please see this publication, available on Fannie Mae’s website at www.efanniemae.com.© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 4
  5. 5. Three Important Things to Know about HARP 2.0The three most important things to know about the expansion of HARP are these: 1. HARP 2.0 helps those significantly underwater homeowners who have made their mortgage payments, despite the economic difficulties of recent years. HARP loans are refinanced loans made to borrowers who have demonstrated a capacity and commitment to make good on their mortgage obligation through a period of severe economic stress and house price declines. While LTVs were capped at 125% LTV under earlier versions of the program for both fixed-rate and ARM loans, which limited HARP’s reach, LTV limits have been lifted for fixed-rate loans with amortization terms of 30 years or less under HARP 2.0. 2. Any lender can refinance any HARP-eligible borrower (see the sidebar: HARP Marketing Guidelines). While this has been true for some time under existing HARP guidelines, it is often misconstrued. Representation and warranty relief has also been available to lenders under HARP guidelines, a fact that is also often misunderstood. Lenders take on no additional risk by refinancing borrowers under HARP. In fact, under the latest set of guidelines, refinancing a borrower using HARP could lessen previous representations and warrants on loans the lender previously sold to the GSEs. 3. HARP 2.0 caps Loan Level Price Adjustments (LLPAs), making refinances more affordable for your borrowers. For loans with terms greater than 20 years secured by a principal residence with an LTV over 80%, the cumulative LLPA charge is capped at .75%, including the .25% Adverse Market Delivery Charge (AMDC). For loans with terms of 20 years or less and 80% LTV or higher secured by the borrower’s principal residence, the cumulative LLPA charge is zero!These three points summarize why HARP 2.0 is important to members and to creditunions: It eases economic burdens while creating tremendous opportunity.© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 5
  6. 6. Executive SummaryHARP 2.0, announced by the Obama Administration and the FHFA in October 2011,has the potential to help between one and five million homeowners refinance theirmortgage, making both their home and their mortgage more affordable. It’s anotherstep toward stabilizing the housing market.Why is HARP 2.0 important to credit unions? Because it is clearly not a same lenderprogram, which was the inaccurate perception of the original Home Affordable Refi-nance Program. The reality, under the initial phase of HARP, was that any lender couldrefinance any eligible borrower, although not much of this type of lending took place.The challenge was lender representations and warranties, hence the perception of thesame-lender restriction.The representations and warranties offered on Desktop Underwriter® (DU®) loans isalso significant. When refinancing HARP-eligible borrowers under Fannie Mae’s DURefi Plus™, the lender will receive the benefit of limited representations and warran-ties associated with a DU underwritten loan. While certain restrictions apply, spelledout in Fannie Mae’s Selling Guide, this limits the risk of helping HARP-eligible borrow-ers.WHY THIS IS IMPORTANT TO YOUR CREDIT UNION:Many lenders, including the very largest, have already done their borrower targeting.They will begin aggressively soliciting eligible homeowners for HARP 2.0 as soon asthe DU and LP updates are released. These borrowers include your members. Keepyour members at your credit union. Attract more members. Do your borrower target-ing NOW so you’ll be ready as well. Read on for the details.© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 6
  7. 7. HARP History / BackgroundThe Obama Administration and the Federal Housing Finance Administration an-nounced HARP 2.0 in October 2011 to further help underwater homeowners refinancetheir loans, homeowners who otherwise would have been unable to refinance. Anunderwater homeowner is any homeowner whose mortgage balance is greater thantheir home’s value, which presents a quandary. People in this situation cannot sell theirhouse because they cannot afford to take the loss. Writing a check for tens or hun-dreds of thousands of dollars is simply not feasible for most Americans. They also maynot be able to afford their existing mortgage payments, adding irony to the quandary.Refinancing to a lower rate makes the mortgage affordable. Refinancing wasn’t anoption, however, due to property values. Rock? Hard place? For sure. These are theborrowers HARP 2.0 will help.HARP 2.0 is not a new program. Rather, it lifts many of HARP’s real and perceivedrestrictions. Credit standards have been relaxed. LTV restrictions have been lifted forfixed-rate loans. Loan Level Price Adjustments (LLPAs) for loans with a term of 20 yearsor less have been reduced to zero, while LLPAs for loans with longer terms have beensignificantly reduced. As a result, refinancing under HARP 2.0 is much more acces-sible as well as much more affordable. There’s no reason every HARP-eligible borrowershouldn’t take advantage of this opportunity as interest rates hit historic lows.HARP 2.0 won’t, on its own, jumpstart the housing market. However, lower mortgagepayments could result in fewer delinquencies, short-sales, and foreclosures, which inturn should help stabilize housing prices. It’s one important step along the way to amuch needed and long-overdue housing recovery, one in which credit unions ought toparticipate.© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 7
  8. 8. The HARP 2.0 PopulationHow many homeowners qualify for HARP 2.0? Estimates range from just under onemillion to more than five million. While neither is accurate, there seems to be someconsensus toward the higher end of the range.The size of the HARP-eligible population is estimated between two and four millionborrowers. Compare that with the projected overall size of the mortgage market in2012, which is roughly 5.6 million loans. HARP could comprise between 40% and 70%of this year’s entire mortgage market. Perhaps coincidentally, perhaps not, the Mort-gage Bankers Association’s refinance estimate for this year is 59%.How many potential HARP borrowers are credit union members? With six percent mar-ket share, that could be 120,000 to 240,000. Your credit union does not have to be theborrower’s current lender in order to refinance the loan. Your credit union has mem-bers who are eligible for HARP 2.0 loans, members whose loans your credit union doesnot have. Time to figure out who they are. Time to refinance their loan. HARP Marketing Guidelines for a particular GSE, regardless of whether the lender or a third-party owns the associated Of the many significant changes introduced Fannie Mae MBS pools or Freddie Mac PC by HARP 2.0, this may be the most significant. pools. Any lender may solicit any HARP-eligible All other provisions of the Selling Guide, borrower for a refinance, whether or not that B2-1.2-05, Prohibited Refinancing Practices, lender made or services the original loan. In regarding refinance practices remain in effect. addition to making HARP much more accessi- ble to borrowers, it makes the program much If lenders choose to reach out to borrowers, more competitive for lenders. The following and the lender’s communication includes a information is taken from Fannie Mae Selling reference to a GSE, then the communication Guide Announcement SEL 2011-12: must include the following: Requirements for the solicitation of Refi Plus “Freddie Mac and Fannie Mae have adopted and DU Refi Plus mortgage loans with LTV changes to the Home Affordable Refinance ratios greater than 80%: Program (HARP) and you may be eligible to take advantage of these changes.” “Lenders may solicit borrowers with mort- gages owned or securitized by a particular “If your mortgage is owned or guaranteed by government-sponsored enterprise (GSE), pro- either Freddie Mac or Fannie Mae, you may be vided that the lender simultaneously applies eligible to refinance your mortgage under the the same advertising and solicitation activities enhanced and expanded provisions of HARP.” with respect to borrowers of mortgage loans with LTV ratios greater than 80% and owned “You can determine whether your mortgage is or securitized by the other GSE. owned by either Freddie Mac or Fannie Mae by checking the following websites: Lenders must apply the same advertising and solicitation activities to all mortgage loans www.freddiemac.com/mymortgage with LTV ratios greater than 80% and serviced http://www.fanniemae.com/loanlookup/ .” Source: Fannie Mae Selling Guide Announcement SEL-2011-12© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 8
  9. 9. How are other lenders positioning for HARP 2.0?There has not been a great deal of HARP 2.0 activity yet as the GSEs complete thenecessary DU and LP upgrades in March of this year. While HARP 2.0 loans can beoriginated and closed before then, not all the features are available and underwritingis mostly a manual process. DU and LP enhancements make the program much moreattractive and accessible to borrowers and to lenders.Large lenders aren’t biding their time. They got to work as soon as the program wasannounced by determining exactly which borrowers are eligible and whether the bor-rower is an existing customer. The day DU and LP are ready, many lenders will beginaggressively marketing refinances to those who are eligible, including your members.There is still time to act even if your credit union has not taken the same steps. It’s rela-tively easy to figure out who among your mortgage-borrowing members are eligible.You should be in contact with them right now, offering to refinance as soon as HARP2.0 is fully functional. Originate in March, close in April. The point, of course, is takingthem off the market. Large lenders have already done their targeting work. They willbe contacting your mortgage-holding members. Some may have done so already.It’s not much harder to know who among your non-mortgage members financed theirhome and who is HARP-eligible. Matching your members’ addresses with publiclyavailable mortgage data will yield a wealth of information about where your mem-bers did their borrowing. What loan product did they use? What rate are they paying?What’s the term? In short, you can discover everything you need to know to determineHARP-eligibility.Yet, there’s a reason to go through this targeting exercise beyond making HARP loansand beyond beating your competitors to the punch. With slight variation, the lessonslearned in finding and helping HARP-eligible borrowers also apply to purchase-moneylending, a market that will come back within the next several years.© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 9
  10. 10. SummaryHARP 2.0 has the potential to help as many as five million underwater homeowners, animportant step in stabilizing the housing market. It will only work if lenders, includingcredit unions, step in and participate. This is an opportunity to take part in the nation’seconomic recovery.It’s also good for members. Saving hundreds of dollars per month adds up to severalthousands of dollars per year. Savings increase, other debt is easier to service, andhomes become more affordable, all things for which credit unions stand. HARP 2.0 is agood mission-fit.HARP 2.0 is also a good opportunity to remind your members and your communitiesthat your credit union is an active, capable, and helpful mortgage lender. Help currentHARP-eligible members and keep them at your credit union. Attract new members bytargeting HARP-eligible borrowers. Many lenders are doing just that, seeing this pro-gram as a significant marketing opportunity.And, we learn valuable purchase-money marketing lessons in marketing HARP, lessonswe will need for the coming purchase market.© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 10