HARP 2.0 Refinancing America's Upside Down Home OwnersDavid Oldenburg
December 6, 2011 — 1,237 views
There is a lot riding on the release of HARP 2.0, with over 12 millions home owners upside-down, strategic foreclosures the new in thing and buyers with no compelling reason to buy. I have been in the mortgage and real estate industry as an active producer and CEO for 20 years, have hosted financial and real estate talk shows for 17 years and just authored a book, "Get Rich In Real Estate"(link http://www.783loan.com/GetRichBook.htm ), available on Amazon January 2012. I have been following the mortgage crisis and the HARP program very closely and have personally used the HARP program for my borrowers with little or no equity to refinance and help them stay in their homes. I have my own opinion and analysis on HARP 2.0 and what stocks might be impacted. I am also throwing in the answers to the top 5 questions I am getting each day about the new HARP 2.0 program.
HARP stands for Home Affordable Refinance Program and has been around for a few years. The HARP program was initially thought to help potentially millions of home owners with little to no equity obtain a lower rate refinance. It has not been a wildly successful program but has helped over 800,000 refinance. The program has had some serious limitations. The first and biggest is that many who are struggling in areas like California, Nevada and Florida and other States are significantly upside-down and HARP 1.0 does not allow these people to refinance. HARP 1.0 has also not allowed the combing of 1st and 2nd mortgages. During the real estate boom of the early to mid-2000's, millions of Americans cashed in on their equity with 2nd mortgages. Millions of Americans also used a combination 1st and 2nd mortgage to purchase with no money down and avoid mortgage insurance. It was this easy access to millions of dollars of equity and the cash-out move-up buyer, along with easy credit, that allowed the real estate market to rocket higher with no fundamental reason for the rapid rise. Does this sound a lot like the Nasdaq dot.com rise in the 1990's? Unfortunately, when the market turned millions of owners had real estate financed at 100% and with an average 6%-10% selling cost, it made it impossible to get out quickly. Owners were left holding, hoping and waiting for things to turn around. HARP 1.0 was supposed to help those owners but did not help enough of them.
Enter The Strategic Foreclosure
A strategic foreclosure has several definitions. My definition is, "walking away from a home that you can afford, simply because it is no longer a sound investment." Most of the calls that I get from people seeking advice on short-sales, bankruptcy, foreclosure, loan modification etc..., are people who could stay in their home if they really wanted but they are choosing to walk away. They tell me honestly that the pain of being hundreds of thousands upside-down is too much and they don't feel they will ever make it back in their lifetime or prior to retirement. They all tell me they have incredible guilt but feel it is the only way to stop the bleeding of equity and obtain a lower payment. By lower payment, they mean rent. I believe the administration is placing a huge gamble on HARP 2.0 and it is the strategic foreclosure person they are seeking to target. They are hoping that if someone is on the fence, they may stay in the home if they can lower their payment or reduce their break even time. Break even time is the point at which you have paid the mortgage down enough to no longer be upside-down. I believe the administration is going to help a lot of people with this program, however, it will not solve the housing crisis. I believe that only more jobs and a more compelling reason to keep your home or buy a home is the solution.
Your Home The Best Retirement Plan Ever
It all gets down to changing the perspective of the buyer and the current home owner, creating opportunity and a compelling reason to feel positive about a home as an investment. I live in Sacramento, California, an area that was recently ranked as a place where it is cheaper to buy a home than rent. If you add in a possible tax deduction for some, it is even more compelling to buy now. In my book, Get Rich In Real Estate", I explain exactly why this is the best time to buy, regardless of what happens to property values. You don't need to buy my book. I will give you a very short version of what I say in the first chapter.
If you are renting a home for $1,400 per month and you can buy a home for the same payment, you have just created the ultimate retirement vehicle. Wouldn't you love to be able to contribute $1,400 per month into a retirement account? Of course, but after paying your rent and other bills, it is hard to save in this tough economy. If you shift your money from paying rent to paying off a home, you are now putting money into an investment that will eventually pay off big. It will pay off big, even if property values stay the same or drop in the future. Example: You buy a $200,000 home for the same payment you are paying in rent. Rents will continue to go higher over the years, yet your 30-year fixed mortgage will always remain the same. If after 30 years, your home has dropped in value, you are still ahead. Say your home dropped 50% in value and is worth just $100,000 in 30 years, you now have $100,000 that you did not have before and you no longer have a mortgage payment. No house payment will save you an additional $16,000 per year or more, depending on your property taxes and hazard insurance expenses.
I believe, regardless of the current economy, it is very unlikely that your $200,000 home in 30 years will be worth $100,000. I believe in 30 years it will be worth more than what you paid for it, even if we do see property values decline over the next few years. I also believe that a $1,400 current rent will be closer to $2,000 per month or more in 30 years, making the advantage and compelling reason to buy today even more exciting. In my book, I talk about using your tax deduction and using it to accelerate paying off your home, without raising the payment. For some, this means paying the home off in 18-22 years. This creates another huge payment savings of more than $100,000 on the above mentioned home purchase.
Back to HARP 2.0 Questions & Answers
I am including here the answers to the top 5 questions I am getting on HARP 2.0. I have not yet seen the final guidelines, so this is based on what I have seen and heard from others in the mortgage industry.
1) Can I Be Severely Upside-Down? Yes, the whole point of the new program is to help those who are upside-down.
2) Can I Consolidate A 1st and 2nd Mortgage? No, I believe that you will only be able to refinance a first mortgage. I have not heard if you will be able to refinance a 1st mortgage and subordinate a 2nd mortgage.
3) Does My Home Qualify? You will need to confirm that you have a Fannie Mae or Freddie Mac loan on your home. You can get this information by going to the following websites and entering your address:
Fannie Mae: Please Google to "Does my home qualify for HARP fannie mae"
Freddie Mac: Please Google to "Does my home qualify for HARP freddie mac"
4) Do I Need To Be Current On My Mortgage? Yes, you cannot have any lates in the last 6 months or 12 months. I have not heard the official rule on which one is accurate.
5) Can I Refinance An Investment Property? Yes, I am hearing you can refinance an investment property.
How Could HARP 2.0 Impact The Market? If the program takes off initially and is seen as helping a lot of home owners and slowing foreclosures, the following stocks and ETF's could benefit. 1) Financial Stocks and ETF's: I believe BAC, WFC, XLF, JPM, GS, FNM will all benefit because we may see a reduction in foreclosures and better balance sheets. FAS could also do well but it is leveraged so much that I would be careful on this one. 2) Home Builders: KBH, DHI, PHM, BZH, TOL Should all do well if the housing crisis appears to be getting better or at least stabilizing. 3) Home Improvement: HD and LOW should do well if home owners get back to believing their homes are worth keeping and they put money back into repairing and maintaining homes that have been neglected. I will be emailing the new HARP 2.0 guidelines to all interested parties when they come out and are confirmed. You can register for FREE email alerts of my show, the Online Money Show on my website www.onlinemoneyshow.com and receive the new guidelines. You can then cancel email alerts if you are not interested in my show. My mortgage company will be doing the HARP 2.0 loans. If you live in California, feel free to contact me through my website at www.783loan.com Stocks Impacted: BAC, WFC, XLF, JPM, GS, FNM, FAZ, KBH, DHI, PHM, BZH, TOL, HD, LOW
Please see http://www.onlinemoneyshow.com/DavidOldenburgBio.htm for a complete bio and more information on the Online Money Show.