Mark Greco has been so happy with the Home Affordable Refinance Program 2.0 that rolled out in January that he’s now dreaming of HARP 3.0.
That’s because Greco, president of 360 Mortgage Group in Austin, Texas, saw the HARP changes coming down the pike, recognized how important it was going to be for homeowners still underwater on their mortgages, and committed his company to supporting it, as they say down in Texas, "whole hog."
Today, the economy is improving, new-home sales are on the uptick, but there are still quite a number of Americans who are underwater on their mortgages.
The government’s first attempt to fix that problem with HARP worked poorly, as the program had a pretty big flaw: It had a restriction of 125 percent loan-to-value. In other words, if your mortgage was $200,000 but during the Great Recession your home depreciated in value to $125,000, you couldn’t refinance through HARP.
The situation in many states, especially in the Northeast, Florida, Southern California, Phoenix, Las Vegas and many areas in between, was such that the value of homes declined by as much as 40 or 50 percent, and if your interest rate was onerous, perhaps 6 or 7 percent, you couldn’t refinance your way out of the problem.
With today’s interest rates fluctuating somewhere between 3 percent and 4 percent, a refinance would make a major difference in a homeowner’s ability to maintain the mortgage, even with a home worth less than at the time of purchase.
HARP 2.0 lifted the 125 percent loan-to-value cap. It also gave lenders a big additional incentive to participate in the program: those who signed off on a HARP refi were released from some of the representations and warranties on the original loan that might otherwise have forced them to buy it back from Fannie Mae or Freddie Mac if it went into default.
There are still some limitations with HARP 2.0: The mortgage must have been sold to Fannie Mae or Freddie Mac before June 1, 2009; homeowners must be current on the mortgage and have no late payments in the last six months and no more than one late payment in the past 12 months; and this must be the first refinance under HARP.
But the latest report from Fannie and Freddie’s regulator, the Federal Housing Finance Agency, demonstrates that changes to the HARP program have brought relief to more underwater borrowers. From the program’s April 2009 inception through the end of September 2011, 928,570 borrowers refinanced through HARP. But less than one in 10 had a loan-to-value ratio above 105 percent.
Contrast that to September, when 49 percent of mortgages refinanced through the HARP program had loan-to-value ratios greater than 105 percent, and 26 percent had loan-to-value ratios above 125 percent. The program had helped 1.73 million borrowers refinance through Sept. 30, and 22.6 percent — 392,292 borrowers all told — had loan-to-value ratios above 105 percent.
The highest loan-to-value mortgage 360 Mortgage has done was 400 percent.
"The implementation of HARP 2.0 was a big win for consumers," Greco said. "Even borrowers who were 200 percent loan-to-value on a mortgage could qualify."
"Some of those underwater borrowers were stuck with 7 percent interest rates," Greco said. "If they refinanced down to 3.5 percent, that’s a real benefit for the consumer and the economy. This product will curtail the foreclosures, and once you do that, you stop the bleeding and you will start seeing appreciation in real estate values."
In other words, instead of a death cycle, the real estate industry can restart a resurrection cycle.
Greco points out something else of importance. HARP 2.0 is good for the agencies that buy up the loans and package them into bonds, thus keeping the industry liquid.
"Borrowers have shown the ability and willingness to make payments, having been able to maintain their jobs through a really down economy," he said. "One of the main qualifications for the HARP 2.0 product is that the borrower has to have made all the mortgage payments, so there is a credit qualification aspect to this. The fact that people continued to make payments through one of the worst economic downturns in history means something. It helps reduce the risk for the agencies, Fannie Mae and Freddie Mac, because they want to make sure the bonds they issue are going to perform."
Admittedly, for a lot of the mortgage industry to digest the fact that they were loaning 125 percent loan-to-value greater was hard to swallow, but it made sense because in a one regard there was less risk, as these homeowners had already made it through the hard times. They had commitment.
In addition, it made even more economic sense to give the homeowner a lower interest rate through HARP 2.0 because that lessened the risk again, as it put the homeowner in a better financial position.
HARP 2.0 has been hugely successful, Greco said. "It was estimated that 1 million households were eligible for the product and through June 2012, about 35 percent of those borrowers have refinanced. It’s been huge for consumers, for the agencies, for the economy and for the mortgage community as a whole."
It has also been huge for 360 Mortgage, as Greco made a series of contrarian plays, all of which has made Greco look like the Nostradamus of the mortgage world.
First, Greco started 360 Mortgage in 2007, when many lenders were shuttering their doors. It started with a retail platform, but by 2010 he decided the company should be 100 percent wholesale — a decimated part of the industry back then — and got out of retail.
"It’s our strategy to go against the grain and it has served us well," he said. "A lot of people were down on the mortgage broker side of the business, but we thought those who survived were good, quality people. Our clients are mortgage brokers around the country. We are licensed in 31 states, and our role is to underwrite and fund loans for those brokers."
Greco made one other maverick move: He decided 360 Mortgage should pile into the HARP program, becoming one of the few companies supporting the wholesale community with the HARP product.
How has Greco done with that bet?
"It’s been an enormous success for us," he said. According to company reports, since first accepting HARP 2.0 applications in March 2012, the company’s active loan pipeline has increased by more than 700 percent.
"Our typical turnaround time for underwriting is 48 hours. In June, we got up to 30 to 35 days in our initial underwrites," he said. "When you have only so much human resources, you can only turn out so much product."
What Greco wants to see now is a HARP 3.0.
"From 2000 through 2006, there were a lot people with subprime mortgages and those were securitized outside the agencies," he said. "Those people do not qualify for HARP products. A HARP 3.0 would be directed at the subprime borrower, thus giving them the ability to refinance."
HARP was a good first step and then came HARP 2.0, Greco said. "If the government moves into HARP 3.0, it would open up the refinance market for non-agency borrowers."
Then even more homeowners can get back on solid financial footing.