Recently, the Home Affordable Refinance Program, HARP, was extended for an additional two years. The Program now concludes December 31, 2015. We have been bullish on HARP since version 2.0 was announced in November 2011. We remain enthusiastically so. Read on for our rationale. For more info: www.nafcu.org/mortgagecadence

1. HARPBriefing Paper
April 2013
Recently, the Home Affordable Refinance
Program, HARP, was extended for an
additional two years. The Program now
concludes December 31, 2015.
We have been bullish on HARP since version
2.0 was announced in November 2011.
We remain enthusiastically so. Read on
for our rationale.
@ 2013 Mortgage Cadence, LLC Company. All Rights Reserved.

2. Table of Contents
HARPBriefing Paper
April 2013
Background 1
Good for Homeowners 2
Good for Homeowners, yet
some are reluctant 3
Good for the Economy 4
Good for Lenders, too 5
What about Investors? 6
Good for Strategy 8
Have questions? Comments? Dan Green, EVP, Marketing, is happy to talk with you about this white paper
and about HARP. Contact him at dgreen@mortgagecadence.com.

3. Background
On April 11, 2013, Ed DeMarco, acting director of the Federal Housing Finance Agency,
announced the extension of the Home Affordable Refinance Program (HARP) through
December 31, 2015. HARP was originally created in 2009 by the Obama Administration
as one of the ways lenders could help underwater homeowners, those who owe more on
their homes than their homes are worth, refinance their mortgages thereby lowering their
payments and allowing them to remain in their homes.
DiMarco’s announcement is HARP’s fourth iteration:
• HARP 1.0: Original Program launched in 2009
• HARP 2.0: Program guidelines expanded, lender reps and warrants reduced
in November 2011
• HARP 3.0: Lender reps and warrants further reduced in mid-year 2012
• HARP 4.0: Program extended through December 31, 2015
To date FHFA estimates HARP has helped over 2 million homeowners. What the extension
signals is that there are many more homeowners in need of assistance. While the exact
number of underwater borrowers remains murky, estimates run as high as 7 million. The
remaining eligible homeowners, some 5 million, could comprise as much as 60% of annual
US mortgage market production. No more than 8 million loans will be originated in 2013 or
2014. The HARP opportunity is significant.
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4. Good for Homeowners
The easiest of all points to make: HARP is good for homeowners. The Program’s primary
expectations are that refinancing puts responsible borrowers in a better position by
reducing their monthly principal and interest payments, reducing their interest rate,
reducing the amortization period, or moving them from a more risky loan structure (such as
an interest-only mortgage or a short-term ARM) to a more stable product (such as a fixed-
rate mortgage).
A main objective of the program is to reduce the borrower’s monthly mortgage payment.
Saving hundreds or even thousands of dollars per month is an obvious benefit. Recaptured
cashflow can help with living and education expenses, education and retirement savings
or simply help to build reserves against economic uncertainty. Regardless of how monthly
mortgage savings are used, one thing is clear: they are recycled into the economy, adding
stability and fueling economic growth.
The aggregate amount of savings is nothing short of enormous. FHFA estimates 2.2 million
homeowners have refinanced since HARP was originally launched. Assuming the average
mortgage payment is reduced by $400 per month, total annual savings amounts to more
than $10 billion. Further assuming all 7 million underwater homeowners reduce their
payments by a like amount, total annual savings jumps to over $33 billion.
To be eligible for a HARP refinance homeowners must meet the following criteria:
• The loan must be owned or guaranteed by Fannie Mae or Freddie Mac.
• The mortgage must have been sold to Fannie Mae or Freddie Mac on or before
May 31, 2009.
• The mortgage cannot have been refinanced under HARP previously unless it is a Fannie
Mae loan that was refinanced under HARP from March-May, 2009.
• The current loan-to-value (LTV) ratio must be greater than 80 percent. There is no
maximum LTV limit for borrower eligibility. If the borrower refinances under HARP
and their new loan is a fixed rate mortgage, there is no maximum LTV. If the borrower
refinances and their new loan is an adjustable rate mortgage, their LTV may not be above
105 percent.
• The borrower must be current on their mortgage payments with no late payments in the
last 6 months and no more than one late payment in the last 12 months.
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5. 3
Good for Homeowners, yet some
are reluctant
More than a few lenders report that it has been difficult to get some HARP-eligible
borrowers to pay attention. The message seems simple enough. Refinance your loan, save
hundreds, perhaps thousands of dollars per month. Yet not all borrowers respond. Some,
when contacted repeatedly, ask to be removed from solicitation lists.
Perhaps it is a sign of the times and of the hard-learned mortgage lessons of the last five
years. An offer seemingly too good to be true must, in fact, be so. Borrowers are much more
savvy in 2013 as a result of the deals offered in the run-up to the housing bubble. Yet the
question still remains: what is the best way to get their attention?
FHFA thinks it has an answer. It will soon launch a nationwide campaign to inform
homeowners about HARP. This campaign will educate consumers about HARP and its
eligibility requirements and motivate them to explore their options and utilize the Program
before it ends.

6. Good for the Economy
The idea behind HARP is to help underwater homeowners who have consistently made their
mortgage payments realize the same refinance benefit as all other borrowers. Keeping them
in their homes is obviously good for them. It is good for their communities, as well. Vacant
homes create a multitude of problems, all of which are a drag on the economy.
Is it working? While HARP alone cannot be given full credit, evidence that it is helping has
been in the news over the past several weeks. In an April 11 story Housingwire reported that
foreclosure filings in the first quarter of the year plummeted to six year lows. According to
the story, which cited a report from RealtyTrac, the US recorded 442,117 foreclosure filings
in the first quarter of 2013, a steep 23% drop from a year ago and the lowest level reached
since 2007. This is good news. It does not mean, however, that foreclosure filings are down in
every market; there are some notable exceptions around the country, especially those with
judicial foreclosure systems.
Shadow inventory is down, too, and markedly so. Housingwire also reported in a story on
March 26, 2013, that from its peak three years ago, the nation’s shadow inventory has fallen
28%, according to a study conducted by CoreLogic. There is still more positive news. A recent
survey conducted by FICO Labs of housing finance risk professionals revealed that 70%
believed housing prices are rising at a sustainable pace.
The housing market is turning the corner. HARP is just one reason, and an important one.
It can do more good, and provide additional fuel for the recovering housing market. More
HARP loans will translate to a stronger, faster economic recovery.
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7. Good for Lenders, too
The main lender concern with HARP has been increased risk, especially as it relates to
representations and warranties. The specific concern is the greater potential for loan
repurchase requests. Fannie Mae addresses this concern in several recent publications
including its Home Affordable Refinance FAQs published on March 8, 2013. The FAQ is
helpful, detailed and clear. It is a must-read for all HARP lenders.
While the details are extremely important,
one way to think about HARP and rep and
warrant risk is to break potential HARP
loans into two broad categories:
1. Same Servicer. Same servicer loans are the lender’s existing loans. Assuming these loans
meet HARP criteria, no additional representation and warranty risk is incurred. Default
risk, a wholly different matter, decreases since a borrower’s payment is reduced and their
cashflow is improved. Homeowners may also now be in a more stable financing structure
(from an interest-only, for instance, into a 30-year fixed mortgage) which improves their
long-term outlook.
2. Other Servicer. HARP 2.0 expanded the Program to allow any lender to refinance any
homeowner regardless of where the loan was financed originally. The important fact to
note with this type of HARP loan is the lender that refinances the loan is not responsible
for any of the representations and warranties associated with the original loan. The new
loan must meet all other HARP criteria; the representation and warranty liability for the
original loan remains with the original lender.
Many lenders are investors, too. The next section discusses investor implications.
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8. What about
Investors?
Aye, there’s the rub. Or is there? We have
written and talked about HARP more than any
other single mortgage lending topic. In every
instance, we have discussed in detail how this
Program is good for borrowers as well as lenders.
But what about investors, as a commenter to one
of our blog posts points out:
…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), gets a
reduced interest rate on their investment (sometimes as low
as 2%)…
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 those securities
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 cash flows and yields
have declined and always do when mortgage rates
dip and borrowers refinance. HARP borrowers are
simply doing the same.
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9. 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 your yield 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 at parity 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, the investor 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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10. Good for Strategy
While not yet robust, a competitive real estate market is emerging. New headlines appear
almost daily about housing: housing starts are up, home values are increasing, foreclosures
are down, rates remain low. Good news is beginning to flow rather than trickle.
Refinance-oriented lending cannot last forever. At some point the last homeowner who
hasn’t refinanced will do so, bringing to a close the longest refinance cycle in US lending
history. What lies ahead will be one of the longest purchase-money cycles since the 1950s.
HARP, especially with its extension, may well provide the bridge between refinance and this
sustained purchase lending market.
What to do? Two things, at least:
1. Work with the agencies, Freddie Mac and Fannie Mae. They have access to data on
loans sold to them. Using this data they can work with you and your teams to identify
eligible HARP loans.
2. Market. With the targeted list of borrowers in hand, use Fannie Mae and Freddie Mac’s
HARP-specific marketing collateral to raise awareness, and, potentially, convince those
borrowers who have been reluctant to take advantage of the Program. Follow this link
for more information.
Get involved. Embrace HARP. The Program is good for everyone in the mortgage and
housing markets.
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11. @ 2013 Mortgage Cadence, LLC Company. All Rights Reserved.
888.462.2336
mortgagecadence.com
info@mortgagecadence.com
HARPBriefing Paper
April 2013
For more information on HARP please see
our first HARP Briefing Paper, published
during the first quarter of 2012. It is
available on our website by clicking here.