FHFA OIG: Borrower Outreach Critical to HARP's Success
By: Esther Cho
Undoubtedly, broadening eligibility for the Home Affordable Refinance Program (HARP) has allowed more borrowers to benefit from the program. However, HARP rules aren’t the only obstacles stunting refinance volume. A report from the Federal Housing Finance Agency Office of Inspector General (FHFAOIG) found a lack of borrower education is also a critical barrier to the program.
HARP was first introduced in March 2009 with the expectation that four to five million borrowers would be refinanced under the program. In September 2011, the program refinanced fewer than one million borrowers, according to the report.
With the introduction of HARP 2.0, which removed the 125 percent loan-to-value ratio ceiling, refinance volume surged and is now at 2.6 million as of May. The program also recently received a two-year extension and is scheduled to expire December 31, 2015.
Although some analysts suggested removing additional program rules could increase eligibility, FHFAOIG found education also remains an important issue.
“[M]any borrowers have not heard of the program, confuse the program with other government housing programs, or do not realize that they are eligible,” the report stated.
For one, the report explained under HARP 1.0, lenders turned borrowers away because of credit and process overlays and capacity restraints, leaving borrowers under the impression that they were not eligible.
Due to changes over the years, FHFAOIG stated lenders have largely removed credit and process overlays and increased their capacity.
Also, borrowers may not realize they can refinance with any participating lender.
To encourage participation, lenders also solicit HARP-eligible borrower. According to the report, some borrowers fail to respond because they don’t recognize the lender or they assume ineligibility since they are underwater.
To increase credibility, the GSEs have allowed lenders to co-brand and use the GSEs’ names in solicitation materials.
Also, to encourage borrowers who simply are not interested, lenders are able to make a contribution of up to $2,000 to reduce the unpaid principal balance. The amount is not reimbursed by the GSEs.
In address borrower misconceptions, FHFA announced plans to implement a nationwide public relations campaign to further educate borrowers about the program.
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