Harp 2.0 is getting a lot of buzz. As a matter of fact, it’s getting so much more buzz than the original HARP program, that both the industry masses AND the general public are buying into the hype that it is going to “save our housing”.
Look, I’m a mortgage lender in Arizona. I earn a living, for my family, by originating home loans. I don’t make money by turning away possible mortgage loan business. But, with HARP (in any flavor) I’m not at all convinced that this is the solution for the large amount of underwater homeowners. There are a few points that continue to come to mind when I consider HARP as a solution to an underwater homeowner.
- Without a principal reduction, what is the true benefit to a lower rate? This, of course, depends on the severity of negative equity. In my state of Arizona, it is still not uncommon for a homeowner to be $200,000 upside down. With a conservative outlook on appreciation, it could still take many years to break even. What happens if you have a life changing event 2, 3, or even 5 years, after a HARP refinance, that forces you to sell your house? You’re still upside down. By a lot, likely.
- In my experiences and interactions, I see many people that want to keep their home. …but not at the cost of sanity and stress.
- In addition to the above, a large majority of homeowners want to lose the feeling of this financial monkey on their back. If the debt isn’t lowered, to near market value. Then a lower rate with a HARP refinance just means a lower to slightly lower payment on a house that you are still upside down in.
- If people are faced with these tough choices of refinancing a negative debt, or getting rid of the property, the common desire of any of the outcomes is the fastest possibility of buying again.
In the past few years, I have generally been negative to short sales. This is because every short sale can go different. It’s a renegotiation of a contract, and if handled by an inexperienced person, it could end badly for the homeowner. But, the one element of a short sale mentioned above has completely changed my feelings towards short sales.
YOU MUST talk to a professional about your specific circumstances, and if you decide that a short sale is in your best interest… YOU MUST connect with a REALTOR that is highly proficient in the process of a short sale.
I’d be willing to bet that you could even find one of those guys somewhere inside these pages.
Don’t ask me, I’m just a lender.
If HARP seems good for you, let me know.
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
This whole idea of the principal reduction doesn’t sit well with me… sorry. People bought houses at sky-high prices and now want to assign blame to everyone else but themselves. HARP is giving a lower monthly payment so that people can remain in their homes. If the payment reduction isn’t enough, then the people apparently bit off more than they could chew & they’ll just have to sell the house and live within their means somewhere else. Nobody is entitled to live in the house of their choosing… you have to be able to afford to live there. Nobody knew that house prices would go so low, but now nobody knows how long it will take for them to go back up. With central banks around the world printing money, it’s only a matter of time before inflation creeps back into the picture. Inflation may bring house prices up faster than anybody ever imagined. I agree with the author that HARP isn’t the best solution for a lot of people. Some people will need a reality check about what they can actually afford, and will need to do a short sale.
Arnold, thanks for your comments. I do completely agree with you about principal reduction. I only included it in the argument, as principal reduction was a big push during the loan modification craze that ultimately ended up nowhere. As far as inflation, I didn’t go there, as I wanted to convey an alternative view to the one side of HARP marketing that the consumers are being fed. It is a much better solution for many homeowners than they previously had, but it is by no means a one size fits all solution to everyone’s woes. Thanks again.
If you use HARP to refinance and take the 15 year option…..you can be right side up before you know it. If you are 200k upside down it is probably a big note and you will advance into principle quickly. A good number of folks that are 200k upside down, made a huge profit on a home at the top of the market and reallocated the dollars to other investments and took a huge mortgage instead of 2 car notes, etc…. When the market was going to the positive, they did not offer to share their winnings with the neighbors, so when it goes bad….should you really be suggesting they walk away. I am not suggesting that someone who lost their job and has been unemployed or underemployed shouldn’t explore their options. However, to just say well your 200k down and you are probably ready to move….do a short sale. Come on. Really? I wouldn’t want you giving financial advice to my friends or family.
@Brenda B Hi Brenda and thanks for the comments. Yes, a 15 year option on a HARP refinance is a wonderful option to drastically reduce your total debt and take back lost equity. However, HARP stands for Home Affordable Refinance Program (keyword: affordable). A reduction in time to payback the loan in nearly every case creates a higher payment. An unrealistic position for the large part of underwater homeowners.
Also, $200k isn’t the rule. It’s an example. The people that pulled all of their equity out of their homes and bought other real estate, or boats/cars, etc. That is just like gambling. Most of those guys have already lost their house, one way or the other. That’s an old argument. Many people, now facing the reality of not being able to refinance, bought with the best of intentions and didn’t do any funny business. You know, the neighbors you are talking about. Falling victim to the outside influences that have driven their values down.
No, just so we’re clear, I don’t suggest anyone “walk away”. Actually, that didn’t come up once. I always advise talking to a professional, legal and/or financial, and decide which avenue is best.
With a whole paragraph of assumption, I’ll make you a deal. I won’t advise your friends and family if you don’t advise mine.
@shollenback I was just at a homeowners on Thursday that Harp will be a lifesaver. She can’t afford to rent for less than her payment will be at a 4% interest rate. She has medical bills for a husband that is gravely ill and the last solution she needed was what she thought she wanted, a short sale. Foreclosure, short sale, or deed in lieu is a walk away from the debt that you are responsible for. It is a quick fix in a market that is turning around. Even here in Florida, I have customers selling today that bought 3 years ago and making money. I too, believe inflation will kick in and the amount they are underwater will shrink. While they are out of the market, renting, home prices will improve, and rates will possibly increase as well. If they have survived for this long, unless there is an additional hardship. Refinance, and wait it out or rent it our and wait it out. The short sale is not a path I would suggest as a means to manage negative equity.
I have an associate that found herself unable to afford the home she was in. She refinanced and then rented with positive cash flow even though she couldn’t sell for the mortgage amount. She has rented a much smaller place but is still in a position to receive the tax benefits of home ownership. Someone else continues to pay on a lovely home for her future and her credit is still in tact.
Rents are historically high and at a low inventory. You will not be able to buy for at least 2 years and maybe much longer. You will lose your tax write off. If you look at a full picture, the short sale may be just short sighted and a less than responsible thing to do. You signed stating that you would pay the mortgage. The added bonus is it can be for a shorter period or a lower amount. You decide what works best for you.
@Brenda B Brenda, those two examples are excellent. They are both a great testament to the need for a refinance solution (whichever version of HARP it may be). On a specific situation, I whole-heartedly agree with you. If you can stay, will stay, and want to stay in your home. Take advantage of a refinance opportunity and better your current situation. And as we talked about initially, if you can do it on a 15 year… even better. As far as inflation, yes, I agree. Now, more than in the past few years, there are indicators that this extreme dip in values can start to correct.
You make a great point about the tax benefits. This is why I really push homeowners to seek professional advice. Legal for protection and financial for repercussions.
My point to the whole HARP vs. Short Sale isn’t to say short sale is the better option. Remember, I have been completely skeptical to short sales for much longer than I have been open to them. The HARP buzz is that it’s going to save housing. It didn’t with HARP 1 and I doubt it will with HARP 2. The short sale option is a different perspective for people that would otherwise be leaving their property (through any means), but get sold that a HARP refi will automatically cure what is ailing them.
It’s not a hate on HARP. I’m doing HARP loans. It’s just not the golden ticket that one search of google will have us believe.
You being in Florida, you’ve seen the extremes just like us in AZ. Brutal, but now rapidly recovering. I’d be willing to bet that if you and I had a conversation over coffee, we’d likely end up agreeing on much more than we disagree on.
I am sure we would have a great cup of coffee. I want to add that I don’t worry about the value of my 401k on a daily basis as I am in it for the long term and I don’t need to retire today. It doesn’t matter how much your home is worth if you don’t have to sell. Refinance, get the low rate and build equity. Pay the darn thing off. Enjoy your life and your family.
@Brenda B “It doesn’t matter how much your home is worth if you don’t have to sell.”…is the best statement of the day. Thank you, Brenda. You do the same.
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Yes Dear am agree with you a short sale can affect our credit but it can be less threatening than a foreclosure and there is a possibility that your negotiator can get the bank to agree to report it positively to the credit.
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Yes Dear am agree with you a short sale can affect our credit but it can be less threatening than a foreclosure and there is a possibility that your negotiator can get the bank to agree to report it positively to the credit.
http://www.miamianrealty.com
Yes Dear am agree with you a short sale can affect our credit but it can be less threatening than a foreclosure and there is a possibility that your negotiator can get the bank to agree to report it positively to the credit
http://www.miamianrealty.com
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I earn a living, for my family, by originating home loans. I don’t make money by turning away possible mortgage loan business. But, with HARP (in any flavor) I’m not at all convinced that this is the solution for the large amount of underwater homeowners. http://manggu.biz
Great Article about short sales. Me myself, i’m not a fan of short sales. i like dealing straight with homeowners.
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