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February 15th, 2013

Will the ‘Merkley Mortgage’ sweep the nation?



ApprovedThe state of Oregon has introduced a pilot mortgage program designed to reach underwater homeowners who don’t qualify to refinance through HARP.

Officially known as the Rebuilding American Homeownership Pilot Program (RAHPP), the effort is based off a proposal introduced by U.S. Senator Jeff Merkley (D-Ore.) last summer.

Currently, the Treasury Department has only approved the pilot program for residents in Multnomah County, Ore., the state’s most populous county and home to Portland. Despite targeting the state’s largest city, the pilot program is only expected to reach about 50 homeowners.

“I am thrilled that Oregon is leading the way in finding innovative ways to help American homeowners,” said Merkley. “Refinancing underwater loans is good for homeowners, their communities, and our broader economy. We need to do everything we can to prevent more foreclosures and put more cash back into the pockets of middle class families in Oregon. Helping families into affordable, fixed-rate loans accomplishes both.”

Who qualifies?

Despite the success of HARP, there are still millions of homeowners in this country who don’t qualify because their loans are not backed by Fannie Mae or Freddie Mac or their loans were originated just a few years ago. This program targets those underwater homeowners.

Here are the qualifications:

  • You must be underwater but plan on staying in your home for at least five more years
  • You must be current and own no other residential property
  • Your mortgage doesn’t have to have been originated before May 31, 2009
  • All loan types qualify, including Option ARMs, sub-prime loans, as well as other “safe” loans like a 30-year fixed


Refinancing homeowners simply have two options under this program:

  • Refinance to a 30-year fixed-rate loan at 5 percent
  • Refinance to a 15-year mortgage at 4 percent

Why are rates higher than current-market rates? “The rate is higher than those available on average to homeowners and homebuyers with good credit, but many underwater borrowers are unable to refinance at all because lenders won’t accept the risk associated with so-called negative equity,” explained Elliot Njus of The Oregonian.

No principal reductions will be offered as part of this pilot program.

A blueprint for HARP 3.0?

Some industry professionals, like loan officer Dan Green, feel that if the pilot program is successful, it might serve as a blueprint for another iteration of the federal refinance program, which he refers to as “HARP 3.0.”

“The Merkley Mortgage pilot program is geared at homeowners who are underwater, but unable to use today’s available home loan programs,” wrote Green. “If the pilot program is deemed a success, it could serve as a model for future underwater mortgage programs, including HARP 3. HARP 3 talks have been picking up momentum in Congress.”

Oregon is funding this $10-million program out of the $220 million the state received as part of the Hardest-Hit Fund.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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