Refis, insurance and divorce

Thursday, March 4
Written 10:15 a.m. EST

PICKING UP HARP AGAIN: Mortgage rates hardly moved this week in Bankrate's weekly survey. The 30-year fixed fell 3 basis points, to 5.12 percent.

In the weekly mortgage analysis linked to above, I explain why (sort of) the feds extended the Home Affordable Refinance Program, which allows homeowners to refi their upside-down mortgages in some cases. When HARP was announced 13 months ago, the goal was to refi 4 million to 5 million mortgages over a 16-month period. But through December, less than 200,000 loans had been refinanced under HARP.

The problem with covering the mortgage beat is that there's too much stuff going on. I write about some subjects intensively for a while, then drop them. The Taylor, Bean & Whitaker fiasco is one such subject, and HARP is another.

Last year, homeowners were telling me that they couldn't get HARP refis because they had mortgage insurance. Now, HARP is designed to accommodate refinancing for people who have mortgage insurance. It's an understatement to say that it wasn't easy for the industry to let people keep the same mortgage insurance policy on a different loan.

Although the industry solved the mortgage insurance problem in theory, they might not have solved it in practice. As I said, last year people complained that they couldn't get HARP refis of loans with mortgage insurance. Lots of people said that Bank of America told them that refis of loans with MI would come in "phase 2" of HARP. When I asked BofA people about this, they were like, "What's phase 2? We've never told consumers anything about a phase 2. We don't know what you're talking about."

A reader named Bob e-mails this: "Your recent blog, 'Will HARP be retuned?' struck a chord with me (very good! -- Holden) because I have been trying, without success, to refinance my mortgage under HARP for the past 10 months." Bob continues:

In May 2009, I was contacted by two different loan officers from my lender (Bank of America) stating that I was eligible under HARP. However, shortly thereafter, I was told that because I have PMI (borrower paid) that I would have to wait for "Phase II." I've been waiting ever since, calling my bank at least once a month to see if there is any news about when "Phase II" will be implemented. Based on anecdotal evidence that I've come across on blogs and message boards, I'm not the only one waiting for "Phase II." From what I can tell, there is not a single mortgage company or bank that is refinancing mortgages with either PMI or LPMI under HARP. What's worse, is that because of PMI, borrowers are stuck with their current servicer.

I would like to hear from someone -- anyone -- who refinanced under HARP and had mortgage insurance.

Bob brings up another subject in this week's blogging: whether HARP allows borrowers' names to be removed from the mortgage note. Divorce drives a lot of refinances. If HARP guidelines don't allow a borrower to be removed from the note, then lots of divorced people are going to liable for mortgages on houses that they no longer live in.

Bob's mortgage is owned by Fannie Mae, and he has researched the topic and finds that Fannie's HARP guidelines do allow a name to be removed from the note after a divorce (PDF file). The loan has to be manually underwritten (as opposed to being underwritten by Fannie's software, Desktop Underwriter). But Bob's mortgage insurance company requires both names to remain on the note.

"I am aware of these provisions because I am trying to refinance my home to remove my ex-wife's name from the mortgage," he writes. "I have until the end of April to get it done, or I'll have to sell the house (and cover the loss), unless my ex-wife and the courts agree to an extension."

How much do you wanna bet that millions of people are stuck in a similar situation? And they all think they're alone.

Read more mortgage blogs.


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