How Will the Federal Home Affordable Refinance Program Help Homeowners?

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That also means that many mortgage firms may have been counting on being able to help their clients refinance high LTV loans by putting them into HARP 2 loans through Wells Fargo. (There are numerous lenders across the country who broker for, or sell loans to Wells Fargo.) But those hopes may be dashed by this latest news. On the other hand, homeowners whose loans are currently serviced by Wells Fargo may have reason to cheer. The guidelines for refinancing their loans are very generous, with few limits on LTVs or minimum credit scores.

"It basically means I can help someone whose loan is with Wells and has, say, a 180% LTV on his condo in Florida with a 600 credit score," says Kelly.

[Related Story: Will Obama's Mortgage Plan Work?]

Will HARP 2 Live Up to the Hype?

Other lenders who have released their guidelines are focusing on offering the program to their own customers. Last week, a Bank of America spokesperson was quoted in a Bloomberg article as saying the bank "is fully committed to providing our customers with the benefits of refinancing through our continued implementation of HARP 2." (Italics added.) Mark Rodgers, director of public affairs for Citi declined to provide specifics, but said that, "Although the program is relatively new, we are seeing success helping borrowers to lower their mortgage payments."

So it's not all bad news. After all, even if the major servicers extend HARP 2 just to their own customers, the program could still help a significant number of homeowners. According to Cecala, Wells Fargo services 17.7% of existing residential mortgage loans, followed by Bank of America (17.2%), Chase (11.4%), Citi (5.2%) and Ally Financial (3.7%). Together, those top 5 lenders service just over half of current residential mortgages. But what about borrowers whose servicers decide not to participate in HARP 2, or who set significant restrictions on the loans they will refinance? A lender may agree to participate in HARP 2, for example, but then set low caps on loan-to-value ratios, the way Wells Fargo has for non-customers?

"One of the things we saw under HARP 1 most of the refinance activity was at 105% (LTV) and that didn't help that much," observes Cecala. "What's going to make it better under HARP 2?" Another problem: borrowers may be stuck with their current servicers, regardless of how good (or not so good) they are at closing their loans. One of the goals of HARP 2 is to encourage competition, explains Cecala, and if lenders limit the program to their existing customers, that won't happen.

"Somewhere in the neighborhood of 90% of borrowers refinance with someone (other than their current mortgage lender). You go with whomever is offering the best loan and there is some competition, but that's not the case with the HARP program," he says.

Still, Cecala remains "cautiously optimistic" about the program. So does Kelly, who points out that some lenders have yet to release guidelines. Indeed, as I was finalizing this story, Kelly told me he received a flyer from a lender promoting HARP 2 loans with no caps on the loan-to-value ratio. "Not everyone is following (Well Fargo's) lead," he notes.

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