HARP 2.0 Briefing Paper for Credit Unions (Whitepaper)

© 2012 Prime Alliance Solutions, Inc. All Rights Reserved. 1

HARP 2.0 Briefing PaperPrime Alliance Solutions, Inc.

February 2012

Dan Green, EVP Credit Union [email protected]

(608) 770-7861

HARP 2.0 Briefing PaperPrime Alliance Solutions, Inc. February 2012

Table of Contents

The HARP 2.0 Program 4

Important HARP Dates 4

Three Important Things to Know about HARP 2.0 5

Executive Summary 6

HARP History / Background 7

The HARP 2.0 Population 8

HARP Marketing Guidelines 8

How are other lenders positioning for HARP 2.0? 9

Summary 10


The HARP 2.0 Program

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 imme-

diately implement HARP in your organization.

Important HARP Dates

March 2009 HARP Announced

October 2011 HARP 2.0 Announced

December 1, 2011 Fannie Mae Refi Plus™ HARP loans with application dates on or after this date are eligible for purchase.

Waiver of certain lender representations and warranties.

January 1, 2012 Loans purchased on or after this date are eligible for reduction and elimination of Loan Level Price Adjustments (LLPA) and Adverse Market Delivery Charges (AMDC)

February 1, 2012 New product: 30 year FRM, Refi Plus™ LTV > 125% (Whole Loan)

March 17, 2012 Fannie Mae DU Refi Plus™ HARP enhancements implemented.

June 1, 2012 New product: 15 year FRM, Refi Plus LTV > 125% (MBS and Whole Loan)

New product: 15 year FRM, Refi Plus LTV 105.01 through 125% (MBS and Whole Loan)

New product: 30 year FRM, Refi Plus LTV > 125% (MBS)

December 31, 2013 HARP Ends: loans must be originated on or before.

April 30, 2014 The last date Fannie Mae will make whole loan HARP purchases.

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.


Three Important Things to Know about HARP 2.0

The three most important things to know about the expansion of HARP are these:

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.

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.

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 credit unions: It eases economic burdens while creating tremendous opportunity.

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Executive Summary

HARP 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 their

mortgage, making both their home and their mortgage more affordable. It’s another

step toward stabilizing the housing market.

Why is HARP 2.0 important to credit unions? Because it is clearly not a same lender

program, 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 could

refinance any eligible borrower, although not much of this type of lending took place.

The challenge was lender representations and warranties, hence the perception of the

same-lender restriction.

The representations and warranties offered on Desktop Underwriter® (DU®) loans is

also significant. When refinancing HARP-eligible borrowers under Fannie Mae’s DU

Refi Plus™, the lender will receive the benefit of limited representations and warran-

ties associated with a DU underwritten loan. While certain restrictions apply, spelled

out 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 as

the DU and LP updates are released. These borrowers include your members. Keep

your 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.


HARP History / Background

The Obama Administration and the Federal Housing Finance Administration an-

nounced HARP 2.0 in October 2011 to further help underwater homeowners refinance

their loans, homeowners who otherwise would have been unable to refinance. An

underwater homeowner is any homeowner whose mortgage balance is greater than

their home’s value, which presents a quandary. People in this situation cannot sell their

house 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 may

not 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 an

option, however, due to property values. Rock? Hard place? For sure. These are the

borrowers HARP 2.0 will help.

HARP 2.0 is not a new program. Rather, it lifts many of HARP’s real and perceived

restrictions. Credit standards have been relaxed. LTV restrictions have been lifted for

fixed-rate loans. Loan Level Price Adjustments (LLPAs) for loans with a term of 20 years

or less have been reduced to zero, while LLPAs for loans with longer terms have been

significantly 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 borrower

shouldn’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 mortgage

payments could result in fewer delinquencies, short-sales, and foreclosures, which in

turn should help stabilize housing prices. It’s one important step along the way to a

much needed and long-overdue housing recovery, one in which credit unions ought to

participate.


HARP Marketing GuidelinesOf the many significant changes introduced by HARP 2.0, this may be the most significant. Any lender may solicit any HARP-eligible borrower for a refinance, whether or not that lender made or services the original loan. In addition to making HARP much more accessi-ble to borrowers, it makes the program much more competitive for lenders. The following information is taken from Fannie Mae Selling Guide Announcement SEL 2011-12:

Requirements for the solicitation of Refi Plus and DU Refi Plus mortgage loans with LTV ratios greater than 80%:

“Lenders may solicit borrowers with mort-gages owned or securitized by a particular government-sponsored enterprise (GSE), pro-vided that the lender simultaneously applies the same advertising and solicitation activities with respect to borrowers of mortgage loans with LTV ratios greater than 80% and owned or securitized by the other GSE.

Lenders must apply the same advertising and solicitation activities to all mortgage loans with LTV ratios greater than 80% and serviced

The HARP 2.0 Population

How many homeowners qualify for HARP 2.0? Estimates range from just under one million to more than five million. While neither is accurate, there seems to be some consensus toward the higher end of the range.

The size of the HARP-eligible population is estimated between two and four million borrowers. Compare that with the projected overall size of the mortgage market in 2012, 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 the borrower’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 does not have. Time to figure out who they are. Time to refinance their loan.

for a particular GSE, regardless of whether the lender or a third-party owns the associated Fannie Mae MBS pools or Freddie Mac PC pools.

All other provisions of the Selling Guide, B2-1.2-05, Prohibited Refinancing Practices, regarding refinance practices remain in effect.

If lenders choose to reach out to borrowers, and the lender’s communication includes a reference to a GSE, then the communication must include the following:

“Freddie Mac and Fannie Mae have adopted changes to the Home Affordable Refinance Program (HARP) and you may be eligible to take advantage of these changes.”

“If your mortgage is owned or guaranteed by either Freddie Mac or Fannie Mae, you may be eligible to refinance your mortgage under the enhanced and expanded provisions of HARP.”

“You can determine whether your mortgage is owned by either Freddie Mac or Fannie Mae by checking the following websites:

www.freddiemac.com/mymortgage http://www.fanniemae.com/loanlookup/ .”

Source: Fannie Mae Selling Guide Announcement SEL-2011-12


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 the

necessary DU and LP upgrades in March of this year. While HARP 2.0 loans can be

originated and closed before then, not all the features are available and underwriting

is mostly a manual process. DU and LP enhancements make the program much more

attractive and accessible to borrowers and to lenders.

Large lenders aren’t biding their time. They got to work as soon as the program was

announced 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 begin

aggressively 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 HARP

2.0 is fully functional. Originate in March, close in April. The point, of course, is taking

them off the market. Large lenders have already done their targeting work. They will

be 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 their

home and who is HARP-eligible. Matching your members’ addresses with publicly

available 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 determine

HARP-eligibility.

Yet, there’s a reason to go through this targeting exercise beyond making HARP loans

and beyond beating your competitors to the punch. With slight variation, the lessons

learned in finding and helping HARP-eligible borrowers also apply to purchase-money

lending, a market that will come back within the next several years.


Summary

HARP 2.0 has the potential to help as many as five million underwater homeowners, an

important step in stabilizing the housing market. It will only work if lenders, including

credit unions, step in and participate. This is an opportunity to take part in the nation’s

economic recovery.

It’s also good for members. Saving hundreds of dollars per month adds up to several

thousands of dollars per year. Savings increase, other debt is easier to service, and

homes become more affordable, all things for which credit unions stand. HARP 2.0 is a

good mission-fit.

HARP 2.0 is also a good opportunity to remind your members and your communities

that your credit union is an active, capable, and helpful mortgage lender. Help current

HARP-eligible members and keep them at your credit union. Attract new members by

targeting 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, lessons

we will need for the coming purchase market.

Economy & Finance

HARP 2.0 Briefing Paper for Credit Unions (Whitepaper)