Across the board we are seeing lenders tighten up their guidelines for HARP customers. The reality is that just because Obama, or Fannie and Freddie say that you can get a loan, none of them are actually working directly with homeowners, so why aren’t lenders offering you a loan if you are actually eligible for HARP?
Let’s start with an explanation of what happens when an agency (Fannie or Freddie) owned loan has a default. Default simply means that the homeowner went late and could be headed for a foreclosure. When that happens, Fannie sends a team of forensic auditors into the file that was delivered to them (your income, assets, appraisal, etc) and looks for any mistake they can find. Even if the mistake is completely irrelevant to the default they are allowed, by contract, to force the lender who originated the loan to buy it back from them. This happens every day and on normal loans is not that big of a deal. There are measures that lenders take to manage the cost of these buybacks an even a market place where they can sell them to other entities so that they don’t have to tie up their money in your mortgage.
The agency auditors have proven time after time, that if they want to find something, they will. And in the case of a default they do want to find something. Examples could be; a paystub that got cut off. A bank statement with a page missing, an appraisal with a picture showing a toilet was cracked. These seemingly insignificant items allow the agency’s to contractually force a buyback every time.
So, if this is common, why is affecting HARP loans? Harp loans are done mostly for underwater borrowers. There is currently little to no value in a mortgage that is a forced buyback on an underwater home. A mortgage of $300,000 on a home worth $200,000 that is not making payments will both tie up the lenders cash flow and also offer little hope of escaping the buyback with anything less than a six figure loss.
Lenders are getting careful, but not because they don’t want to do the loan. They are careful because too many buybacks on HARP loans could put them out of business. The most common response we are seeing is that lenders want to avoid a HARP loan if it requires an appraisal (this is pretty rare), and don’t want assets involved in the file. These two items are the ones that the forensic auditors can really sink their teeth into and if they don’t exist in the file, then there isn’t anything for them to use to force the buyback.
Your best bet if you find that you are being turned down for HARP but think you are eligible is to keep trying, lenders each have their own strategies for avoiding the buybacks, so that mean they will each have different guidelines.