Although many credit unions may not have realized it, the second version of the federal government's Home Affordable Refinance Program is a more workable and beneficial for both borrowers and credit unions than its predecessor, according to housing finance executives at credit unions that have begun making the loans.
Rolled out in 2010, the first version of HARP soon gained a reputation for significantly burdensome paperwork and a loan-to-value cap of 125%, which left far too many borrowers unable to participate. Further, if homeowners fell beneath the LTV cap, they would often founder on the HARP's underwriting guidelines, which were set by Fannie Mae. That further weeded out potential participants.
With those restraints, many credit unions reported opting out of the program, preferring to do, they said, better by their members in need of mortgage loan assistance than they could through the program.
But a second version of HARP, introduced in 2011, removed many of those barriers, particularly the 125% LTV cap, and made HARP something credit unions could use to not just help their own members but gain new ones, executives said.
"The intention of HARP was to help people who are current on their mortgage payments but do not qualify for a traditional refinance due to a significant loss in their home's value or who have little or no equity to refinance and take advantage of lower interest rates," said Barry Stricklin, vice president of real estate lending at Tower Federal Credit Union, one of the credit unions which has found the program to have been a success.
Stricklin said credit union was particularly proud of its effort with the latest version of HARP, which he dubbed HARP 2.0. Stricklin said the difference between the two programs was so stark that often a borrower whose loan had been rejected for a HARP refinance a few months before could now be resubmitted and found to qualify. "Often it was like night and day," Stricklin said. "It was that dramatic."
But as good as it was for borrowers, Stricklin explained that the changed program left the CU with a challenge. The 126,000- member $2.6 billion credit union was afraid so many members had heard that HARP could not help them or had even tried to apply under the first program and failed that they would not understand that the HARP 2.0 was a significantly different program.
"By keeping the same name, we were worried that some members might miss the opportunity to apply," Stricklin said.
So the Laurel, Md.-based Tower began a detailed analysis of its member's loan histories, identifying those which had the sorts of mortgage loans that would likely qualify based on what the credit union knew about surrounding real estate values. It then sent letters to those members.
"We didn't tell members to apply," Stricklin said. "All we did was explain the new HARP program and then invite them to call us and see if they might qualify." And Tower didn't restrict the effort to only members with loans originated with the credit union, Stricklin recounted. Members with loans they had received from another institution got the same letter, only with an additional sentence advising the members that even though they had gotten their loans from somewhere else, the credit union was still able to help them.
The results have been outstanding, Stricklin reported, with many members relating how they tried to get a HARP refinancing from other institutions only to face additional fees and loan-to-value caps (even though HARP 2.0 does not set any) and long delays as the larger banks tried to cope with the strong volume. Since March of this year, when it began making loans under the new program, Tower has handled $70 million in applications and, of those, seen a full 70% coming from loans that were originally made by another financial institution.
"We wanted to take a proactive approach," said Martin Breland, Tower's CEO. "We assumed many of our members were not aware of the new program and didn't know that they may qualify for a refinance even though their homes had lost value."
The impact on some members' lives has been significant the credit union said, with the average member saving $425 per month or more than $5,000 annually and some members saving $700 per month.
Stricklin said it was important that credit unions also understand the differences in the programs. For example, the fact that LTV has been dropped as factor means that HARP loans no longer have to have appraisals, a previous stumbling block in the process since they not only cost the borrower but also highlight the lower property values that could kill the deal.
The degree to which paperwork has also been taken out of the equation is something credit unions need to understand, he said, adding that there isn't any more paperwork in refinancing a loan with HARP than there would be with a non-HARP loan. In addition, because the loans are eligible for sale to Fannie Mae and Freddie Mac, they don't carry any real risk, he added.
The 125,000-member, $1.4 billion, Arizona State Credit Union, Phoenix, is another institution that has found the most recent version of HARP helpful. According Paul Stull, senior vice president for branding at the credit union, Arizona State has closed $90 million in HARP loans since early April out of an overall loan volume of $240 million.
"The LTV cap was really just killing our members in the first HARP," he said. Arizona was one of the hardest hit states on home values. "We just had too many people who could not qualify."
Like Tower, Arizona State had to launch a comprehensive member education effort to help members understand the differences between the old and the new HARP. The credit union soon found that nonmembers were very attracted to HARP loans. A majority of the $90 million in HARP loans have represented not just new loans but new members, Stull said.
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