On Tuesday, July 28th, CNBC Host Dennis Kneale talked with CNBC’s Michelle Caruso-Cabrera and her recent experience in the Home Affordable Refinance Program (HARP). See the video below:
Dennis and Michelle got this story completely wrong. This program is meant to allow homeowners who couldn’t refinance because of Loan-to-Value ratios, income, etc. The only loans that can be refinanced are those owned by Fannie Mae and Freddie Mac and the borrower still has to pay all the principal of the loan (no principal reductions) and pays for refinancing costs. This allows a borrower that is current on their loan (they must be current) to secure a lower interest rate (the market rate at the time) and therefore reduce their mortgage payment and/or replace their ARM with a Fixed Rate.
Because the borrower still pays refinancing costs and still pays the total amount due, the cost to the government is minimal. The best reason that borrowers can refinance LTV’s up to 125% is because the loan is already Fannie/Freddie owned and will still be Fannie/Freddie owned afterwards – refinancing borrowers with LTV’s above 100% should actually REDUCE the number of defaults on those homes in the future as the borrower has a more affordable payment.
Dennis and Michelle make it sound like homeowners that are not desperate are getting free Government handouts and that it is costing taxpayers a lot. What it is really doing is simply facilitating a more flexible refinancing of higher-rate loans by the now government-owned Fannie Mae and Freddie Mac.
The second program, Home Affordable Modifications, is designed for borrowers that are at high risk of foreclosure and can include interest rate reductions, loan term extensions, and principle reductions – all of which will have substantial costs to taxpayers but are also critical to reducing mortgage foreclosures. It seems that the CNBC reporters confused the terms of one program with the goals of the other.
