The Obama Administration's upgraded centerpiece refinance relief program, known as HARP 2.0, continues to get mixed reviews from skittish lenders harping about risk.  

In the latest survey of senior loan officers, the Federal Reserve Board said lenders fear they may have to take back too many loans even from the improved HARP (Home Affordable Refinance Program) and they voiced problems associated with private mortgage insurance and second liens, which can kill a HARP deal.  

Only a third of senior loan officers from 58 domestic banks and 23 U.S. branches of foreign banks reported that they were actively soliciting HARP 2.0 applications and were satisfying most demand as it comes in.  

In contrast, nearly half indicated that they had very little participation in HARP 2.0, according to the Fed's latest"Senior Loan Officer Opinion Survey on Bank Lending Practices."  

What's HARP  

Available until Dec. 31, 2013, HARP allows qualifying homeowners with Fannie Mae or Freddie Mac mortgages made prior to June 1, 2009 to refinance to better rates and terms.  

HARP's most beneficial provision allows refinancing for underwater mortgages - where the homeowner owes more than the home is worth - no matter how far underwater the homeowner is submerged, again, provided the homeowner qualifies.  

While the government has stepped up financial incentives to lure more lenders to the HARP table, the program is voluntary and lenders aren't bum rushing to write the loans.  

In the senior officer loan survey, similar to it findings about tight credit, reported here last week, the Fed found lenders shrinking away from HARP. Along with the more than 47 percent not participating, another 22.6 percent weren't actively soliciting applications, but would consider applications that came in.  

Among the approximate 53 percent participating on some level, a majority anticipated that 60 percent or more of applications would be approved and successfully completed.  

HARP fears  

When asked what factors contributed to a bank's willingness or ability to offer HARP refinances:  

• Nearly 60 percent said the risk that GSE's (Fannie Mae and Freddie Mac) might force them to take the mortgage back was either somewhat important, very important or the most important. Fannie and Freddie buy mortgages bundled as securities. If they find fraudulent or fudged information on the application form, appraisal or other loan documents, they can force the lender to buy back the loan.  

According to U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) recent mortgage fraud analysis, forced mortgage purchases related to fraud were largely responsible for a 31 percent increase in mortgage fraud reports in 2011, compared to 2010.  

• More than 57 percent said difficulty in transferring private mortgage insurance coverage was either somewhat important, very important or the most important.  

Borrowers whose lender pays mortgage insurance cannot participate in HARP. The borrower typically pays for mortgage insurance, which protects the lenders from the borrower failing to pay the loan. However, even if the borrower is paying the insurance, getting a new policy isn't easy. In the past year or so, governing states wrested control of operations of two major mortgage insurance operations. With fewer companies and greater market risk, some borrowers have been priced out or underwritten out of the market.  

• Also more than 57 percent said having a tough time obtaining re-subordination of a known second lien was either somewhat important, very important or the most important factor contributing to a bank's willingness or ability to offer HARP loans.  

Re-subordination occurs when a homeowner wants to refinance a primary mortgage and keep the existing second mortgage in place. That could be difficult if the first is with one lender and the second with another. If the second doesn't give in, the first might consider the outside debt burden too risky - for both the lender and the borrower.  

HARP 3.0?  

Sen. Robert Menendez (D-NJ) and Sen. Barbara Boxer (D-CA) were scheduled last week to introduce Responsible Homeowners Refinancing Act of 2012, legislation designed to give still more homeowners a shot at a HARP refinance and address lenders concerns.  

Senior loan officers were also asked about their bank's willingness or ability to refinance non-HARP underwater loans, even for those who have been current on their existing mortgages for at least 12 months - on of HARP's requirements.  

Nearly 51 percent said they were doing very few such refinances and about 38 percent said they weren't trying to attract customers but were satisfying borrowers who applied.  

Only 6 percent of the 53 banks that responded to the question said they were actively soliciting non-HARP refinances.  

Written by Broderick Perkins 


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