Obama’s HARP Program – Why Banks Aren’t Lending According to the Government’s Suggestions

April 7, 2012 by  Filed under: Loans 

The government decided that it was time to reward responsible homeowners, those who make their payments on time and have never defaulted. They created the Home Affordable Refinance program; not only one version, but a new and improved version called HARP 2.0. In it, homeowners are supposed to be able to refinance regardless of their equity position, regardless of Debt to Income ratio and regardless of past credit. ALL YOU NEEDED was to be on time 11 out of the previous 12 months with your Mortgage payments.

Sounds like a great plan right? Sure! However, the big banks don’t want to play ball with Mr. Obama and his HARP plan. You’re hard pressed to find a lender who is lending without any of their own restrictions to the plan. In fact, for one reason or another, it is like shoving a square peg into a round hole. For example, there is supposed to be no restriction to how under water your home is. However, what most lenders are saying is “sure, as long as you get a Property Inspection Waiver, we’ll lend on unlimited LTV”. Otherwise, most lenders are lending up to 125% Loan to Value (how much you owe divided by how much your home is worth). The problem is that most borrowers under water more than 125% and there are many factors at play that determine whether or not you will qualify for a Property Inspection Waiver. So most borrowers that are over 125% Loan to Value are finding themselves out of luck!

Additionally. On March 26th, Fannie Mae made it even easier to get a HARP loan. EVEN if you have a Bankruptcy or a Foreclosure in your past, you will no longer have to wait for 7 years to qualify. Past BK’s or Foreclosures wouldn’t impact your qualification to get an interest rate in the low 4% range! That’s great for the hundreds of thousands of Americans that had to Short Sell a home to protect their financial picture. The problem; even though Fannie Mae says it’s so, MOST BIG BANKS won’t sign on. As of the date of this article, no lenders will give an approval if a borrower has a BK within the last 48 months.

The next thing that has been recently updated is the debt ratio requirement, It is supposed to be that your debt to income ratio (amount of money you put out every month to service your debt divided by your gross income) will no longer be a factor when trying to qualify for a HARP loan. Unfortunately, true to form, NO BANKS are stepping up to the plate on that one either. Most lenders are sticking to the 45% back end debt ratio requirement for qualification.

Although this article paints a bleak picture of the reality of the HARP program, what you need to note is that this author consistently says “most lenders” when describing who is doing what. The reality is that although the “big banks” don’t want to take a chance, there are smaller, Portfolio lenders who are looking at this opportunity to buy market share. There are some lenders who are shoving those square pegs into round holes. You just have to find one that knows everyone’s qualifications. There are so many different programs and restrictions, it is very difficult to figure out what lenders will lend to your specific scenario.

If you’ve been turned down by your current mortgage servicer or the local bank, Don’t give up!

Find a broker that is an expert on HARP guidelines. They should be able to find the right lender for your individual situation. Now is probably the only chance that you will get to get yourself into a 30 year fixed rate loan in the low 4% range.

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