As I noted last week, the Home Affordable Refinance Program is a bust. And I've never succeeded in getting a straight answer as to why.
In comments from a post last week, Andy Boyum writes: "HARP is a joke!" He says that, because his loan has mortgage insurance, he can refinance only with his current lender, Wells Fargo. He and his wife want to refinance at 125 percent of the current value, but the bank has turned him down because they have a maxed-out credit card.
"I think it's because the MI we already have isn't going to cover them because we bought at 100%, now asking for 125%," he adds. "That and the fact that they make more money on us at 6.75 then they will at 4.75. So are they daring us to stop making our payments?"
This is the gotcha moment. Because if the Boyums stop making their mortgage payments and seek a modification, the bank will audit their personal finances and conclude that they can afford the monthly payments, and they're strategically defaulting. They won't qualify for a modification, so the bank won't give them one.
They probably do qualify for a HARP refi, but what incentive do the bank and the mortgage insurer have to make that happen? The bank ends up collecting a lower interest rate, and the mortgage insurer ends up shouldering more risk. And for what? To give lower mortgage payments to someone who can afford the current monthly obligation?
The Obama administration and Congress have pushed servicers hard to approve more loan modifications, but they have exerted no pressure on lenders to approve more HARP refis. Yet HARP is the Making Home Affordable program that rewards the responsible. Every HARP refi stimulates the economy by reducing the borrower's monthly bills, freeing cash to be spent on other things.
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