In the early ’80s, 30-year mortgage rates were an eye popping 12½%. Of course the Prime Rate was 11%, 12 month CDs were paying 10% and the 10-year Treasury note was yielding a lofty 11%—so everything truly was relative. In fact most industry participants in 1983 never thought we’d see mid-single digit mortgage rates again.
More than a generation later, mortgage rates have again dropped to “Kennedy-era” levels and the Home Affordable Refinance Program—if executed to its full potential—can help get housing back on a long-term road to recovery.
In its purest form, HARP is considered one of the best “government-sponsored” programs in a generation. It is stimulative to the economy at the very least, and a much needed lifeline to struggling homeowners at its best.
Skeptics however, see HARP as another way for the country’s largest banks to again line their pockets—after a bailout of only a few years ago, helped save their hides. Why do skeptics feel this way?—because far too many eligible borrowers are still not able to find HARP relief. It’s time for the country’s largest servicers to aggressively target their own high risk, “HARP eligible” homeowners. It’s time for payback.
Social Security, the GI Bill, and the creation of the U.S. Highway system are three noteworthy government programs that helped countless tens of millions of Americans build wealth, secure their financial future, and build a base from which to prosper. While HARP may not have the same long-term, financial impact on the country, it does have the ability to provide immediate financial relief.
However, the homeowners with the greatest needs are still being held captive to the largest institutions who service their loans. The vast majority of high LTV, HARP-eligible homeowners who may qualify for a refinance, remain trapped due almost entirely to that which they cannot control: their high LTV.
In fact, according to a report published by FNMA in March 2013, homeowners with loan-to-value ratios greater than 125% indicated that the lenders they’ve contacted were being “non-responsive” at a rate that is nearly 2.5 times higher than those with LTVs less than 105%. In other words, high LTV borrowers who are seeking help are not receiving it.
This can be explained by a misalignment of interests, an unwillingness for large banks to place a firm-wide emphasis on high-LTV HARPs, and the fact that those same banks know that that their own high LTV borrower will almost certainly NOT be able to find another bank to refinance their loan.
This last point highlights a critical (and possibly the only) flaw in the execution of HARP, which has resulted in a near system-wide moratorium against these borrowers. Severely underwater homeowners are essentially being told by their current servicer: “You’ll have to wait until we get to you—and like it—because you really can’t go anywhere else.” These same banks fear that if they don’t get to the low LTV homeowners first, they may be lost to another lender.
It’s truly time for the large banks who received monetary assistance, government support, and financial relief, to return the favor to the very taxpayers who were ultimately the source of that relief.
A solution: It’s not that these banks are necessarily refusing to help these homeowners, it’s that they are not doing everything they can to truly assist them.
The poet Kahlil Gibran once wrote: “If you love somebody, let them go, for if they return, they were always yours. If they don't, they never were.” I’m not suggesting a large servicer necessarily love their borrower. I am suggesting however, that if a servicer is struggling from capacity or “risk” constraints, they should do that which is right by their homeowner, the government who owns most of this country’s mortgage risk, and their shareholders.
Banks should either create or augment their existing operational infrastructure to help drive the high risk homeowner to HARP assistance in greater overall numbers—even if it’s not with the current lender.
While this might involve handing-off that homeowner to another lender, it’s ultimately the right thing to do. Holding the high-risk homeowners hostage until such time that the bank may eventually “get to them,” is both irresponsible and inexcusable.
Furthermore, if rates rise quickly, these homeowners will lose the opportunity to refinance—possibly forever.
It can be done. LVG’s HARP Catalyst Programs have helped mortgage insurance companies, for example, lower shareholder risk; servicers recapture loans that would have otherwise disappeared; lenders increase market share and banks manage their overflow.
Serving your customer is always good business. In “A Miracle on 34th Street,” Kris Kringle directs a shopper from Macy’s to Gimbel’s for a better deal. The shopper is so impressed that she tells the head of Macy’s toy department that she is now a loyal and life-long customer. When you have the opportunity to feed the masses, isn’t it best to help those that are starving first?