HARP 2.0 Saving Credit Union Members From Drowning in High Payments
By Gina Ragusa Credit Unions Online
Fueled in part by rock bottom interest rates, HARP 2.0 has been an MVP refinancing hero for many underwater homeowners, many who have successfully refinanced through their credit union.
According to a recent Federal Housing Finance Agency report, 4,400 underwater borrowers refinanced during first quarter, with 2,900 in March alone.
Announced last year, HARP 2.0 offers refinance relief to the borrower who owes more on his or her home than it’s worth. The initial program, designed to accomplish the same goal was not as successful due to the loan-to-value cap and other variables in place.
Toward the end of 2011, President Obama unveiled HARP 2.0, removing some of the common hurdles homeowners face in an effort to provide a gateway for more borrowers to refinance. Program highlights include:
The original 125% loan-to-value cap was eliminated so it no longer matters how deeply underwater you are or how far your home value as fallen.
On-site appraisals are no longer required. This also reduces costs for both the borrower and lender. Lenders can use automated systems to generate an estimated value the home instead of requiring an on-site appraisal.
Certain risk fees have been eliminated for borrowers refinancing a mortgage of 20 years or less.
Income re-verification has been removed unless mortgage payments increase by more than 20% a month (due to a shortened loan term).
More opportunities for condominium owners. Previously, borrowers could not refinance if one owner owned 10% of the units or if 20% of the units had fallen behind on association dues.
Some of the same rules apply, such as the loan must be owned by Freddie Mac or Fannie Mae and the borrower must be current on mortgage payments--you cannot have more than one late payment over the past year and no late payments in the last six months. Additionally, you cannot have previously refinanced through HARP.
HARP 2.0 Is Good News for Credit Union Members
Even with the revisions, the program was rolled out to lukewarm reviews. Some financial institutions and financial bloggers were skeptical if the program would work. A jaded country that had been through the first version of HARP wondered if the second version would truly bring relief or if the new program was simply government lip service.
Hal Coxon, VP/Marketing & Sales from Consumers Credit Union ($608 million, Waukegan IL) says HARP 2.0 has taken over the refinance area at his credit union and members can’t get enough.
“The national average of HARP 2.0 refinances is around 15% of portfolio…we’re doing 20%,” he says. “In conjunction with an internal campaign and low rates, HARP 2.0 has tremendous energy surrounding it and we are seeing how many more people are qualifying for this program.”
“We have had considerable requests for HARP 2.0 refinances,” says Dean Pielemeier Chief Lending Officer at Day Air Credit Union ($260 million, Kettering, OH). “We are finding that the majority of people who apply for HARP 2.0 do qualify and that it is beneficial and needed by the majority.”
Like Consumers and Day Air Credit Union, Affinity Federal Credit Union ($2.2 billion, Basking Ridge, NJ) is experiencing tremendous success with refinances. “As recently as January of this year, 97% of our applications were for refinances with just 3% for purchases,” says Edward Sweeney, AVP/Consumer Loans. “As of June, the ratio of refinance to purchases has dropped to 83% refinances to 17% purchases. Many of our members chose to refinance a second time as rates continued to decline over the past few years.”
“We have had a 45% increase in applications during the second quarter of this year compared to the first quarter,” Pielemeier observes. “Our purchase to refi ratio continues to be 50/50.”
Low Rates and Motivating Offers Keep Members Happy
Coxon says that rate also plays a key role with the recent influx. “Year over year rates keep going down. In 2010, rates were extremely low so we thought it was as good as it would get. Then came 2011 and we were tracking even lower rates…now in 2012, just when we thought rates couldn’t drop any further, they go down again.”
Consumers Credit Union is fueling the momentum of HARP 2.0 with an internal referral program called, “Great Guns of Mortgages.” Coxon says that employees have numerous ways to earn cash through making referrals to the loan department.
“It’s an ongoing staff promotion where every referral counts,” he explains. “Every referral to the mortgage department, regardless of whether it results in a sale or not, provides the employee with an opportunity to draw a ‘chip.’ Printed on the chip is $1, $2 or $5 prize. Once the employee draws their chip we pay them on the spot.”
Additionally the credit union is also tracking sales throughout the quarter. “We have a stretch goal and if we hit it we hold 10 drawings for $500 for employees who have made closed loan referrals.” Coxon says that for the last two quarters credit union employees have nailed that stretch goal. The internal campaign kicked off in February and will run through January 2013.
Pielemeier says that Day Air isn’t running any refinance campaigns but currently has a 5/10 mortgage offer. “Our volume is such that we are full capacity and do not have a need to run any promotions,” he says. “We do continue to stay in contact with our Realtor network and let our members know we offer mortgages through our electronic channels.”
He explains that the 5/10 year mortgage promotion allows the member to choose from a 5 to 10 year term, at one great low rate of 2.99%. “Our target audience on this product are members whose loans we originated in the past five years, sold to Fannie Mae, had an original term of 15 years or less and an LTV of less than 80%. This has been a very successful product/promotion.”
Credit Union Refinances Keep Dreams Alive
While increasing mortgage numbers are keeping credit unions in the black, it’s the stories of how these loans and refinances have changed and touched members lives’ reminding the community why it’s important to keep the credit union movement alive.
“In November 2011, Affinity Federal Credit Union funded a refinance for a member who was recovering from significant illness,” Sweeney recalls. “During his treatment, his significant reserves had been decimated by medical costs as he had lost his employment - and medical coverage - due to his inability to continue working.”
Further straining the situation was the market's significant downturn, thus zapping the equity from his home. Sweeney explains that the credit union put the member’s well being and health above all. “Nonetheless, Affinity provided the member a 40-year ARM loan above guidelines, which minimized his payments and allowed the family to get back on their feet. With the member now fully recovered, he is employed again and making strides to accumulate enough money to pay his balance down to qualify for a traditional fixed-rate product. The member has been unbelievably vocal in his appreciation for the consideration he received.”
Struggling to make your mortgage payments? Unsure if you qualify for HARP 2.0? Stop suffering in order to make ends meet, find a credit union and inquire about refinance programs.