Fear of Finance - HARP

     After a 4 1/2 year hiatus from the finance industry which I filled with multiple degrees, international conference presentations, numerous sub-contract and part-time positions (mostly adjunct faculty and media work) I accepted a position almost two months ago at a smaller bank at their invitation. As I tell friends I feel slightly like Jonah, having prayed for years for a full time position with health benefits but swearing I'd never go back into finance.  The volume of sales in the first 30 days exceeded the contract 5 month goal, so I think He had plans I wasn't willing to accept.  Meanwhile the consulting, poverty discussions, media and adjunct teaching work for two institutions continues while I finish the PhD. In part because I am a confessed workaholic with limited time on earth to make a positive impact, and in part because I honor commitments.

     It doesn't take much reading of my prior posts to see the anger over Wall Street, banking excesses, bonuses and profit motive at the expense of communities and individuals.  I don't work for one of those institutions, and I am a firm believer that we change organizations from the inside, rarely from the outside. Particularly given the lack of oversight despite the supposed Bureau of Consumer Protection and the empty Dodd Frank Act. One of the reasons the Home Affordable Refinance Program was extended through 2015 is that far too many American homeowners haven't taken advantage of it and some lenders aren't even participating.  After all, they'd rather keep their customers at higher interest rates. Financially for families and individuals of all ages this program is far too valuable to cash flows and equity positions not to participate.  Examples:
  • I had a closing this week where a family with 25 years left on their 30 year fixed loan moved to a 15 year fixed, saved over $150,000 in payments they won't make, and the new payment is now lower than what their previous 30 year payment was.
  • Another family, nearing retirement age was given a very bad loan in 2006 by some broker and appraiser. The value given their property at that time was four times reality.  Not value lost in the downturn, but outright value fraud.  So even though they're backwards on the home (by 250%), they still got their lower rate 10 year fixed so they can pay it off, retire on schedule and keep the home they raised their children in.

     At lunch with a realtor recently who suggested that helping families who are backwards on their home refinance to a far more affordable and debt reducing position was just another government handout, my response is this. Would it be better for the millions of families in that position to just walk away from the property and leave the banks trying to physically maintain and sell it at a loss? What really would have been best was if the greed and corruption clearly evident in mortgage backed derivatives, some Wall Street firms, and too many unregulated mortgage brokers never caused a global economic collapse to begin with. It's too late for that.  It's also pretty clear that nothing's really being done to prevent further systemic problems thanks to lobbyists, corporations having more value that people, and the power that comes from being too big to jail.

     For those who qualify for HARP (Freddie/Fannie mortgage that was purchased by either GSE before 
May 1, 2009) an appraisal may not be required, and in most cases the current value will not prevent moving to current interest rates.  They're not the lowest we've seen as the U.S. bond market has moved from yields in the 1.6 range to over 2.0 in recent weeks, but if one's currently above 5% it is not a small amount of savings to long term debt and cash flow.  Savings that is desperately needed for most American families who own homes to either save more for retirement (a definite need) or to use as consumers which is what really drives the global economy to begin with.  Consumer spending: an unsustainable economic pattern, but reality for the time being.  "People are persuaded to spend money we don't have; on things we don't need; to create impressions that won't last; on people we don't care about."  (See the Tim Jackson Ted Talk below).

     As banks in general rate just above the U.S. Congress in trust and customer service and below root canals and colonoscopies, it's not surprising that too many  home owners haven't attempted to get better mortgages.  It's also a real shame because it's real money with an immediate impact on family cash flows and too many American homeowners are struggling month to month.  Unfortunately, that's not going to change in the next five years based on what's going on in Washington (hot air, no substance, and no value). 

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