Treasury: HARP Cutoff Date Shouldn’t Be Extended, But Refinance Program for Private Mortgages Needed

January 22, 2014 No Comments »
Treasury: HARP Cutoff Date Shouldn’t Be Extended, But Refinance Program for Private Mortgages Needed

We’ve all been waiting for news on the Home Affordable Refinance Program (HARP) front, and a nugget has finally arrived.

Unfortunately, it’s a bit of a mixed bag, depending on who owns your mortgage, and whether the words of a Treasury representative will actually amount to anything.

During a speech at the ABS Vegas 2014 Conference today, the Counselor to the Secretary of the Treasury for Housing Finance Policy Dr. Michael Stegman shed some light on the agency’s stance regarding the future of HARP.

He noted early in his speech that nearly three million homeowners have already received assistance through the popular refinance program, and that another two million are still HARP-eligible.

Additionally, he explained that the Treasury doesn’t believe the HARP eligibility date should be changed.

The cutoff date is currently May 31, 2009, meaning borrowers who took out loans after that date are not eligible for a HARP refinance, even if they’re currently underwater.

[HARP 2.1 Is Here! Fannie and Freddie to Use Note Date for Eligibility]

Yes, even borrowers who took out loans as recently as four years ago are underwater, depending on the region in which they purchased.

However, Stegman said “very few homeowners” with loans originated after the cut-off date are actually underwater and making changes “would do more harm than good by prolonging market and investor uncertainties.”

In other words, they’re not going to tinker with the program just to help a handful of borrowers who purchased homes at the wrong time. After all, it’s a choice to buy a home and you don’t get purchase protection if your property value declines.

Back before the latest housing crisis, those who didn’t buy at the absolute bottom simply had to wait for home prices to bounce back up. They didn’t just turn to the government months later to get some kind of concession.

Hope for a Refinance Program for Private-Label Mortgages

And now for the good news. Stegman also voiced concern regarding the absence of a large-scale underwater refinance program for private-label mortgages, those not backed by Fannie Mae and Freddie Mac.

Stegman pointed out that some communities are simply taking matters into their own hands by turning to eminent domain. He argues that a better path might be refinancing legislation.

So as the Treasury works to reform the housing finance system, it “will seek to ensure that neither the source of one’s mortgage nor who owns the credit risk should determine a borrower’s eligibility for refinancing or mortgage assistance.”

In other words, there could be expanded eligibility for HARP in the near future if legislators get off their seats and make it happen.

Even if it doesn’t happen with HARP initially, future mortgage assistance programs could encompass all types of loans, not just those backed by the GSEs.

Mortgage Forgiveness Debt Relief Act Extension

He also emphasized how important it is to extend the Mortgage Forgiveness Debt Relief Act, which expired at the end of last year.

Since 2007, homeowners who received principal forgiveness via short sales, loan modifications, and deed-in-lieu of foreclosures didn’t have to pay taxes on the amount forgiven.

If Congress doesn’t act soon, borrowers could be on the hook for the shortfall. The uncertainty could also push homeowners to foreclose instead of pursuing more beneficial outcomes.

Stegman called on Congress to extend the tax forgiveness immediately to clear up any doubt, instead of passing a tax extender late in the year and making it retroactive.

So that’s the latest housing policy news. Some good news, some bad, and a whole lot of uncertainty, per usual.

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