1001 PENNSYLVANIA AVENUE, N.W. SUITE 500 SOUTH WASHINGTON, D.C. 20004 Tel. 202.289.4322 Fax 202.289.

1903

John H. Dalton President Tel: 202.589.1922 Fax: 202.589.2507 E-mail: johnd@fsround.org

The Honorable Timothy Geithner Secretary U.S. Department of the Treasury 1500 Pennsylvania Avenue, NW Washington, D.C. 20220 September 19, 2011 Re: Changes to HARP to assist more homeowners Dear Secretary Geithner: The Housing Policy Council was pleased when the President spoke about helping responsible homeowners in his speech on September 8. We support efforts by the Administration to stabilize the housing market and help it to contribute to positive growth in the economy. During the recent crisis, homeowners lost $6.5 trillion in equity that has yet to return. 1 Fourteen million homeowners remain underwater on their mortgages. 2 We welcome new ideas and new initiatives that will result in revitalization of the housing market, and, we want to contribute to the effective development and implementation of worthwhile initiatives. We recommend that the Administration consider modifications in the existing Home Affordable Refinance Program (HARP). HARP can be improved to increase its effectiveness, and this would be a more efficient approach rather than seeking to create a new refinance program. In a recent speech, Federal Reserve Governor Elizabeth Duke said that more than more than 800,000 borrowers have used HARP, but that an estimated 4 million borrowers appear to meet the basic eligibility for HARP refinancing. In order to help facilitate the use of HARP and to provide additional options for the more than 14 million homeowners under water, the Housing Policy Council recommends the following changes to HARP: A. Increase LTV above 125%: Borrowers in some markets owe more than 125% of the value of their home. More of these homeowners could potentially be assisted by increasing the HARP LTV eligibility to include homeowners who are current on their loans, but have a mortgage with an LTV above 125%.

Zandi, Mark. To Shore Up the Recovery, Help Housing. Moodys Analytics. May 25, 2011. http://www.economy.com/mark-zandi/documents/To-Shore-Up-the-Recovery-Help-Housing.pdf 2 Ibid.

B. Reduce or eliminate loan-level pricing adjustments (LLPAs) imposed by the GSEs: eliminate the added-on fees that the GSEs charge that can increase refinancing costs for loans with high LTVs. The Federal Reserve has also noted that LLPAs are a constraint and can increase the cost of refinancing by thousands of dollars, thus discouraging borrowers from participating in HARP. 3

C. Repurchase Demands on HARP Qualified Loans should be limited: If a loan qualifies for a HARP refinance, there should not be any repurchase demands based on issues related to the performance of the original loan, except for cases of fraud. D. Fannie Mae and Freddie Mac should be required to have identical HARP programs. Under current practices, the two housing GSEs have different elements in their HARP programs. Insisting that they be identical would eliminate unnecessary complications in the two programs and simplify use of HARP for all other participants in the program. For example, Freddie should adopt Fannie's policy on satisfaction of risk and warranties in credit-related buy backs with 12 months payment history for refinances with the same servicer. That should also be available for new servicers. E. HARP Borrowers should be eligible for HAMP modifications: HARP borrowers are currently not eligible for HAMP modifications. Given the current condition of the economy and the housing market, allowing a homeowner with a HARP refinance to be considered for a HAMP modification, if necessary, would provide addition flexibility to help distressed homeowners F. Servicers should be permitted to market the HARP programs. With that permission, more borrowers would be aware of HARP and there would be more applicants for the program. Marketing the program would also encourage more same servicer refinancing which can be done more easily, quickly and with less representations and warranties risk. We believe that these changes and others should be considered to make HARP available to more homeowners who are able to pay their mortgage, but are currently not eligible to refinance. These changes can have a positive impact and could be implemented more quickly than attempting to create a new program. Housing Policy Council members and other lenders and servicers are working to use a variety of programs including HAMP and EHLP. New program requirements should be limited and administered in as simple and straightforward a manner possible to enable servicers to incorporate them into their systems efficiently. We support an effort to improve the HARP program. Improving the effectiveness of HARP, however, is only one of the steps needed to address the weakness of the housing market. As you know, the overhang of unsold properties is also one of the main obstacles to the start of a recovery in housing. This inventory overhang consists of houses in foreclosure; houses on which the mortgages are delinquent over 120 days, REO properties and vacant homes that were newly constructed and never have been placed in the market successfully. While there are many attempts to measure that overhang, we think it is in the neighborhood of 6

Governor Elizabeth A. Duke At the Federal Reserve Board Policy Forum: The Housing Market Going Forward: Lessons Learned from the Recent Crisis, Washington, D.C. September 1, 2011

million units. 4 This overhang must be moved from its current status into useful active properties before the housing sector can truly recover. We support the initiative underway by Treasury in cooperation with FHFA and HUD to dispose of the REO properties held by the GSEs and FHA. The Housing Policy Council is providing comments on the Administrations Request for Information on REO properties (attached). We believe that a balanced program that enables the private sector and other participants to acquire and use the GSE and FHA REO properties can also help begin to restore the health of the housing market. There is no perfect solution or silver bullet to restoring the housing market. The overall weakness in the economy and the level of unemployment remain the largest obstacles to a full recovery. Nevertheless, improvements to the HARP program and a more coordinated effort to reduce REO inventories can be positive steps. We would be pleased to work with you on these and other ideas to assist in the recovery of the housing market and the nations economy. If there are questions about our suggestions, please contact Paul Leonard (202-589-1921) or Joan Gregory (202-5891923). Sincerely,

John H. Dalton President Housing Policy Council

Zandi, Mark. Housing Hits Bottom in 2011.