A Once in a Lifetime Opportunity

Originally posted on CUInsight.com

Guest post written by Dan Green, EVP, Marketing, Mortgage Cadence

Prime Alliance, a Mortgage Cadence company, is the NAFCU Services Preferred Partner for Credit Union Mortgage Solutions.


The housing market is in recovery; most economists and many of us involved in the industry agree. Low rates are, perhaps, the biggest contributing factor. And they are low. Lowest in history? Pretty close. While doing some research recently, we came across the 140-year history of the 10 year treasury rate. Looks like rates were this low just once during this period, in 1940. Based on the data, it’s safe to say rates really are the lowest in history.

But you knew that. What you might not have known is we – lenders – are having a hard time getting a certain group of homeowners to avail themselves of this once in a lifetime opportunity. Who are they? Why won’t they refinance? Great questions.

First, who they are. According to an article last week on Fortune’s Term Sheet blog, this subset of homeowners dwell in the larger set known as those underwater: those who owe more on their homes than their homes are worth. Plenty has been written about them. Even more has been done to help them. The Home Affordable Refinance Program, HARP, was created in 2009 and revamped in 2011 to save them hundreds of dollars per month, thousands per year. Yet, according to last week’s article, only about 25% of HARP-eligible borrowers end up refinancing.

That leads us to why. One potential answer, perhaps the answer, is such a deal seems too good to be true. Some, maybe many of these homeowners bought their homes using loans that were too good to be true. Once bitten, they are now overly cautious about a deal that will save them money and keep them in their homes. And that’s too bad. HARP may be one of the best programs to come out of the housing crisis. Those who have used it are saving thousands of dollars per year. More importantly, they have stayed in their homes and in their communities, both of which contribute positively to overall economic recovery.

What do we do? This is where credit unions have an advantage. As the trusted financial advisor to many members, we’re in an ideal position to help those HARP-eligible borrowers who are sitting on the sidelines and will miss out if they do not act this year. Active HARP-lending credit unions have told me the usual methods are not working: email, snail mail, call center outreach. Perhaps it is time to enlist the help of those members who have taken advantage of the Program: personal testimonials from members who have refinanced, talking about their experience and the impact it has had on their lives. eNewsletters are one delivery method. Social media may be another, better answer.

HARP, at least at the moment, officially ends on December 31, 2013. Somewhere in the wide range of 2 million to 7 million homeowners remain eligible. Don’t let them miss this chance.

Prime Alliance is the NAFCU Services Preferred Partner for Credit Union Mortgage Solutions.

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2 comments

  1. The Truth says:

    This is a perfect example of why the housing bubble is not fixed. I am glad people are refinancing to stay in their homes. But what you don’t say is that someone else is paying for this. An investor in mortgage pools (financial institution, insurance company, retirement company, 401K), get a reduced interest rate on their investment (sometimes as low as 2%). By the way, low interest rates are a tax on wealth. Not just the wealthy but everyone who has cash. I don’t see the housing bubble being fixed until the tax payers bail out Freddie or Fannie Mae and people have to qualify by income and have equity in their homes to get a loan. Don’t forget tax payers are you, you get to pay for it.

  2. Dan says:

    On one hand this statement is true. Someone is paying for this. That someone is investors. Investors in mortgage securities have seen their income on thosesecurities decline as a result of HARP. We could stop there and agree, assuming all else was equal. All else is not equal, however. Here’s why.

    The Home Affordable Refinance Program allows underwater homeowners to do what above water homeowners are doing: refinance their mortgage to take advantage of today’s low rates. Who’s paying for that? The same investors. Their cashflows and yields have declined and always do when mortgage rates dip and borrowers refinance. HARP borrowers are simply doing the same.

    Take this one step further. Let’s say you are an investor who bought 10, 6.00%, $200,000 30-year mortgage loans at the height of the boom in 2007. Let’s further assume 9 of the 10 homeowners remained above water throughout the housing crisis. Being prudent each of them refinanced into a new 30-year loan at 3.50% in 2012. The coupon rate on your investment dropped 2.50% on 9 loans decreasing youryield and your cashflow. That’s mortgage investing and one of the risks investors run.

    What about the 10th loan? It, of course, is underwater, which happened within a year of closing. This fact alone is not a big deal, but there’s more: the borrower’s income dropped as a result of the economy making their mortgage payment uncomfortably unaffordable. Even so, they made every payment on time. When HARP 1.0 was announced they were hopeful they would get relief but discovered they were not eligible. They marshaled on, continuing to make their payments even though it was a struggle. In late 2011 they had about tapped their resources and were facing reality: unable to refinance they would have to give up their home.

    Then HARP 2.0 is announced. Our borrower qualifies for the Program, refinances their loan, saving approximately $350 per month on their payment. The investor’s cashflow drops by a like amount, yet the 10th borrower is now atparity with the other 9.

    This is a good outcome for the borrower. Is it a good outcome for the investor? In a word, yes. The borrower was on the verge of default; when that happens, theinvestor writes off the principal amount of the loan and foregoes the interest thereby considerably reducing yield and cashflow. On the theory, and the practice, that some income is better than no income and that losses are bad, this is a favorable outcome for all and no more of a benefit for the underwater homeowner than the other nine borrowers received. QED.

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