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» VISIT US ONLINE @ DSNEWS.COM 55 COVE R STORY INDUSTRY INSIGHT M ARKET PUL SE 55 rather well. In fact, he says, HARP 2.0 works so well it may be contributing to the dearth of inventory in many markets. "I bought my house in 2005," O'Kavage said. "I refinanced it in 2008 and then again in 2013 under HARP." He saved about $500 per month by entering into HARP, which is not uncommon—in fact according to the Obama administration a typical homeowner could save nearly $2,000 a year through the program. And this is the reason for the low inventory— homeowners get a lower monthly payment than they'll ever have. If they get another property, they'll undoubtedly pay more. "So why am I going to move?" he said. Since its inception, a total of 3.1 million mortgages have been refinanced through HARP, with two-thirds of those borrowers with LTVs between 80 percent and 105 percent. And, while the program hasn't struggled as mightily as HAMP, it has not been the booming success as once touted—especially in its first incarnation. In general, the country seems to share O'Kavage's view that MHA has helped as much as the government says, which makes it strange that the lawmakers who wrote the programs are so mum about it. Perhaps one reason for the silence from Capitol Hill is the fact that senators are still working out some of the bugs, particularly how these new mortgage rates affect lenders. On the one hand, banks giving lower rates for refinancing would, it might seem, stand to lose money in the long run, unless they did something to make up for the shortfall. One of the reasons HARP was modified to a 2.0 version, in fact, was because the program made it extremely easy to refinance with an existing lender, rather than creating competition. Phillip Swagel, who served as an economist and assistant to former Treasury secretary Hank Paulson from December 2006 to January 2009, said this effectively gave lenders a largely captive audience when it came time for borrowers to refinance. Large lenders did indeed benefit from HARP's second go. In 2012, the Wall Street Journal, citing data from Nomura Holdings, reported servicers could expect $12 billion in revenue from the swell of HARP applicants. at same year, the New York Times reported HARP applications accounted for about 60 percent of refinancing applications at Bank of America and 40 percent at Wells Fargo. Newer versions of these figures are difficult to come by, but with approved HARP applications up to about 3.1 million, according to FHFA spokeswoman Stefanie Johnson, things seem certain to carry on until the program closes at the end of 2015. "I'm not sure it's a giveaway to the existing lender," Swagel said. "Some lenders might hesitate to do a refi for a borrower with imperfect credit, even if they qualify for HARP 2.0." It's also known as a credit overlay, in which the lender has stricter terms than the underlying government program, Swagel notes. "It's a reflection of the lack of certainty in the legal and regulatory environment for mortgage lending, and not an intrinsic defect of HARP 2.0 or a giveaway to lenders," he said. Still, Swagel worries that in the grand scheme, there is insufficient competition in housing finance. "Getting more entry and competition would be beneficial for homeowners by driving down mortgage interest rates," he said. "But again, an important culprit in the lack of competition for some borrowers is the uncertain legal and regulatory environment that dissuades entry." As for where MHA is headed, its yellow brick road may cut straight across the desk of Sen. Jeff Merkley (D-Oregon). e Democrat is the architect of the "Merkley Mortgage" bill that allows certain Oregon homeowners to refinance for lower interest rates without having to go through Fannie or Freddie. e bill is roundly considered the prototype for HARP 3.0, which would remove the GSE requirements for all Americans. For Merkley, the heart of economic rejuvenation lies in strengthening the middle class. "Homeownership is the greatest wealth- building tool the middle class has ever known," Merkley said. e Great Recession flipped this tool on its ear and exposed many in the middle and lower classes to predatory lenders, and people went from building wealth to underwater in an awful hurry, he says. Merkley feels requiring a GSE-backed mortgage as a prerequisite for relief is unduly limiting. After all, it's not as if borrowers choose to sell their mortgages to Fannie Mae, and it's certainly not as if they knew they needed to have Fannie or Freddie on their side to get relief in case the bottom fell out. "It shouldn't matter which financial institution owns a loan; all responsible homeowners should have the option to refinance and save money," Merkley said. e bill to pass HARP 3.0, also known as the Rebuilding American Homeownership Act, is currently bouncing around the senate. In the end, O'Kavage believes there is plenty of blame to go around for any failures, horror stories, or shortcomings in the MHA programs. Wall Street certainly shares some blame, he says, but so do real estate agents who do not inform their clients what they're getting into when they buy an expensive house, lenders—even large banks, which O'Kavage said got overwhelmed by the sudden onslaught of new regulations and applications and did not have the infrastructure to deal with it—and, yes, even the buyers. "I'm a big advocate of education," O'Kavage said. "Before you sign a promissory note, know what you're signing. ey should teach this stuff in school." Ashley R. Harris, Coin Robins, and Carrie Bay contributed to the article. "The impact of [HAMP] should not be measured solely by the number of borrowers who have received modifications, but also by how the program has helped reduce the number of foreclosures and helped transform the way the mortgage industry views the modification of mortgage loans." –Phyllis Caldwell, former chief of the Treasury's Homeownership Preservation Office

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