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August 9th, 2012

Unnecessary lender overlays stunting HARP

by Peter Miller


int rate lockIt’s hardly an illusion that getting a new loan seems awfully difficult these days even despite the fact that mortgage rates are at historic lows. A new survey by the Federal Reserve backs up borrower claims that getting a loan is as difficult as ever. No less important, the HARP program now represents a large portion of all major lender activity.

“Banks continued to report little change in lending standards for prime mortgages and having tightened standards somewhat for nontraditional mortgages over the past three months,” said the Federal Reserve.

Borrowers have been complaining about picky loans standards for far more than three months. The Fed report is really stating that lenders continue to insist on standards well beyond what’s necessary to control risk.

You can see this with HARP

“Many banks also reported that credit overlays that they had imposed on top of the HARP requirements were at least somewhat important factors in limiting their participation–; a significant fraction of respondents reported having been unwilling to offer HARP refinance loans to some customers with high loan-to-value (LTV) ratios, limited or nonstandard documentation of income or assets, or low FICO scores,” said the Fed.

But HARP is a program that targets underwater borrowers.

According to the government’s HARP website, “if you’re not behind on your mortgage payments but you have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through HARP.”

In effect, the banks are blocking the HARP program by insisting on excess underwriting requirements–that’s the real meaning of “credit overlays.”

Underwriting requirements for high-profit loan products—like auto loans and credit cards–have been relaxed while mortgage money remains difficult to obtain.

Despite barriers, HARP activity is up

How can it be that we have more refinances while lenders maintain tough underwriting standards?


Late last year, the Obama Administration dumped the HARP requirement that mortgage debt could not be greater than 125 percent of your property’s value. This opened up the program to homeowners in major foreclosure centers like California, Florida and Nevada.  The result was that Fannie Mae and Freddie Mac refinanced more loans in the first six months of 2012 than in all of 2011.

Here are a few parting questions to consider:

  • How many additional loans could have been refinanced without excess credit overlays?
  • How many homes could have been saved from foreclosure with lower mortgages rates?
  • And how much HARP criticism should really be directed at the lenders (who want less regulation and oversight)?

3 Responses to “Unnecessary lender overlays stunting HARP”

  1. Ohio HARP Refinance Says: August 11th, 2012 at 1:12 pm

    I can back up that claim. Can’t think of one of our lenders offering anything higher than 125% on Freddie’s version of HARP, and scores lower than 620? Forget about it. Sure would be nice to see lenders get rid of their overlays on these loans.

  2. Trying my Damnedest to refi in Maine Says: September 23rd, 2012 at 11:08 am

    Have applied to more than 7 lenders, this time. I’m getting really tired of putting all my personal information out there and then getting turned down time after time. This with a high credit score and good LTV. Never missed a payment, never paid late. Being retired, I am told over and over despite the fact that I can continue to make my payments, my documented assets and the income I do have do not COUNT. What kind of insanity is this? I think it is just more discrimination against women and people over 50. I worked for over 40 years. My hard-earned tax money went to bail these lenders out. Thus I don’t understand why I can’t have one of these loans! I really need it!

  3. Le Le Says: September 26th, 2012 at 2:30 pm

    It is terrible when you both have credit scores in the 800’s, have been making your payment on time since you’ve had the loan, are not under water by much at all, but you still can’t refinance. Problem had to rent our our home and since can’t claim on our taxes and don’t have a full year of showing as rental income, no one will touch our loan because now show our DTI ratio as being 70%. Even though we have lots of reserves in our bank account, the debt to income thing is killing it. I shouldn’t say no one will touch our loan, only our original servicer which is Bank Of America will do the Harp 2. BUT the interest rate is really high and closing costs almost double from other companies. Since they already have our loan, you would think it would be cheaper and easier.

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