THIN ICE – WHY WE NEEDED HASP (In a Nutshell)
May 7th, 2009 categories: Mortgage & Finance
More than ever, I have been taking calls from people desperate for refinances, eager to get out of adjustable rate high interest loans that are draining their pocket books. For many borrowers out there, there is either one complication or another. Today, two problems create the biggest roadblocks. First, there is not enough equity in the borrower’s property, and second, the borrower does not have enough documentable income to support qualification on a new loan. These barriers to entry to the world of refinancing can turn out to be some very thin ice between borrower and the world of foreclosure below.
Years ago, sufficient equity was not a big issue. During the “refi boom” experienced in the earlier part of this decade, housing prices were on the rise. The higher the home value, the lower the loan-to-value (LTV) and the lower the LTV, the easier it is to refinance, particularly into lower rates. Banks take on less risk if the borrower owns a larger percentage of his or her home, so they are willing to offer lower rates and qualify people more easily. Today, that is not the case. With houses having been on the decline, many people today owe more than their house is worth, so there is very little incentive for banks to grant a refinance in this dim situation.
Regarding the second problem, some who may have the equity to refinance face a totally different issue. As credit 
has tightened up, so too have lending practices. Years ago, one could basically get a loan if they knew how to sign their name. Not that I encouraged it, but “stated income/stated asset” (SISA) loans were a very viable option. This type of loan was very popular with self-employed borrowers who had a difficult time proving their income on paper. For these people, all that was needed was a dollar amount for what they said they made and a signature to go with it. Unfortunately, adjustable rate mortgages, a very popular loan type over the past ten years, do begin adjusting at some point. As interest rates have started to rise, the self employed have found themselves up against a wall. SISA loans no longer exist. If you were making your payments on time, but needed (or wanted) to refinance, you didn’t have much of a choice, until now.
To counter both of these issues, the Obama administration has passed the Home Affordability and Stability Plan (HASP). This plan seeks to keep people in their homes by counteracting the two big issues above. If you can demonstrate that you have made your payments on time (and passed a few other tests), you may be eligible to refinance under the HASP program. The program allows for refinancing up to 105% of the current value of the home without adding mortgage insurance, if you weren’t already paying it. Secondly, if you stay with the same lender, you may refinance without any income or asset documentation. This is a lifesaver for the self employed. Rates are competitive and the process is pretty simple.
There are many critics of the HASP program who say that people should not have gotten themselves into this situation in the first place and we should not use government to create the cure. If I may offer my two cents: This program is targeting those who have made every honest effort to pay on time and have succeeded in doing so. To not allow them the opportunity to refinance now when rates are low is certainly to cast them toward one inevitable end. In five years I have not had a foreclosure and I take pride in the fact that I can now help many more avoid it. I sleep better knowing it.
Note: There is a secondary portion of the HASP program not addressed in this entry.
[Robert A, Martinson is a Loan Officer at Bank of America. Rob is like all of our Contributors: easy to talk to, and always happy to hear from our blog visitors! You can contact him at Robert.a.martinson@bankofamerica.com]
