It began as a mass exodus to the real estate industry, as established business people left their jobs to begin careers as real estate agents and brokers. Prices soared, and soon chummy handshakes coupled with fake smiles to seal irresponsible deals filled conference rooms and lending offices. Mortgage loans were handed out to anybody and everybody who applied.
The nation’s booming real estate market was a growing monster masquerading around in the disguise of economic prosperity. Then, once it reached its apex, the monster tore from the fake skin of stability and bore its true form. With flailing, ravaging arms, the bleeding housing market rampaged across all 50 states and took as many people down as it could before violently crashing to the floor.
Bankers later would say they were forced to grant those home loans, as per ridiculous regulation passed years earlier (i.e. Carter’s Community Reinvestment Act). Borrowers said they were conned into signing contracts far outside of their means to repay due to their lender’s false assurance that they’d be fine. Blame and party affiliations aside, what was happening in the real estate market at the turn of the century soon turned into the worst economic catastrophe experienced since the 1930s.
Individuals and families were left broken. Some were immediately defaulting on their mortgage loans and finding themselves without a house. Others were found figuratively sitting on the roof of theirs bobbing just above water. It wasn’t long before the wave of negative equity swept across all who took out a home loan around the marking of the new millennium.
Struggling to help their country, the president and his administration met with the nation’s sharpest minds and rolled out what was called HARP. The HARP we’re talking about isn’t a musical instrument strummed by the graceful fingers of our government officials, but instead it’s the Home Affordable Refinance Program touted by the current administration, and it was supposed to be the healing bandage the nation needed after the housing collapse.
The First HARP’s Depressing Notes
The original HARP’s first ballad began with noble intentions, and indeed boosted the morale of many who heard its initial, soft melody. But as the plan began rolling, the sweet notes turned into a depressing lament, and left the nation feeling bitter and jaded.
HARP was supposed to allow those with underwater homes to refinance their upside down mortgage loans in order to lift them back to solvency. However, there were problems with the plan that prohibited it from reaching its goal, the most notable of which was the loan-to-value (LTV) cap.
An LTV is the difference between the outstanding balance of a home mortgage loan and the amount that the loan’s property is worth. If a borrower had a home loan with a remaining balance of $100,000 and their property was appraised at $100,000, then their LTV would be 100 percent. If their home loan was worth $110,000 and their home was appraised at $100,000, their LTV would be 110 percent.
With the first HARP, there was an LTV cap of 125 percent.
Such a ceiling may have sounded lenient on paper, but in reality it was an impractical restriction that castrated this program, effectively rendering it useless.
The nation’s struggling couldn’t take advantage of the aid the government sent their way. Instead they were forced to continue their wait in their water-logged houses, or, as many others were forced to do, jump ship and leave their homes behind.