Back to HARP for a moment. The Home Affordable Refinance Program lets underwater homeowners with solid payment histories refinance at lower rates.
The first version only had a million takers. The second — HARP 2.0 — started in March 2012 and is already working a lot better.
This is all old news, but I put it here for readers unfamiliar with HARP.
Anyway, I found this amusing:
Dan Green over at The Mortgage Reports explains that one of the reasons HARP 1.0 failed was that banks didn’t trust other banks’ underwriting!
[A]s much as HARP’s mortgage guidelines were favorable to homeowners, they included clauses and obligations rife with lending risk.
Specifically, lenders bore the underwriting risks of the HARP applicant’s initial mortgage loan. This meant that if Wells Fargo wanted to do a HARP refinance of a Bank of America mortgage, Wells Fargo would have to assume responsibility for Bank of America’s original mortgage approval.
If Bank of America approved a loan “by accident” or against generally-acceptable underwriting standards, in doing a HARP refinance of that loan, Wells Fargo would be on the hook for the loan if something went bad.
This led to two predictable outcomes. First, banks were hesitant to HARP-refinance another bank’s loans. And, second, HARP failed to reach its potential.
But with HARP 2.0, lenders aren’t liable for any originators’, um, accidents.