Though well-intentioned, the Obama Administration's housing policy has spectacularly failed to respond in a timely and common-sense way to the devastation caused by the collapse of the housing sector.

The American Recovery and Reinvestment Act (better known as the stimulus package) was passed into law in February 2009. This law contained the Home Affordable Refinance Program. Harp was intended to allow homeowners who were underwater on their mortgages to refinance, but was somewhat flawed due to its many restrictions.

In the fall of 2011, the administration announced Harp 2.0. This is largely a well-conceived housing policy designed to help millions of Americans refinance at historically low interest rates, improve cash flow, and preserve the potential for equity gains down the road. It will improve family finances, family prospects for the future, stimulate the economy and help support housing values.

Why did it take so long to revise the Harp 1.0 guidelines after its shortcomings became apparent? And why does Harp 2.0 continue the incrementalism that marred the first incarnation of this program and many of the housing policies the president has put forth?

Version 1.0 of Harp suffered because it excluded homeowners whose homes were valued more than 25% below the loan amount as well as borrowers who may have missed a mortgage payment in the last year. These ineligible Americans were over-represented in the areas of the country that were hardest hit by the Great Recession. To achieve the greatest impact, the original version of Harp should have been designed to help the individuals, families, and communities most hurt by economic turmoil. Harp 1.0 also should have dispensed with loan-to-value caps and allowed borrowers with minor payment issues, as Harp 2.0 did.

Harp 2.0 still misses the mark in important ways that will prevent thousands of Americans from using the program. For instance, the new Harp does not permit borrowers who have already refinanced through the program to use it again. Why? Mortgage rates are down significantly over the past couple of years. If Harp 1.0 helped improve the situation for a homeowner in 2009, 2010 or 2011, then why should the government deny them the chance to improve their situation further now? Isn't easing the strain on households the point of the program in the first place? 

Also, like Harp 1.0, the new version of the program limits refinancings to homeowners whose loans were purchased by Fannie or Freddie prior to 2009. I am sure the administration has reasons for this limitation, but to an experienced mortgage professional who works with families to save homes and improve lives, it appears to be a monumental failure to employ common sense.

In January 2009 unemployment was at 7.9%, having increased by nearly three percentage points in the previous year. By October 2009 the unemployment rate hit its crisis high of 10%. As you might expect, the unemployment situation directly correlated to increasing foreclosures. In 2010, the year after unemployment reached its high, annual foreclosures peaked at just over 1 million homes. Since 2006 over 4 million homes have been lost to foreclosure. Last year we actually saw a meaningful decline in foreclosures, but that was not due to economic improvements but rather to delays in the foreclosure process caused by the robo-signing scandal.

The point is simply this: It should have been easy to forecast that the economy would deteriorate further from the time Harp was initiated in 2009, and the program should have been designed to assist homeowners who would come under stress in the future. How many families could have kept their homes if Harp 1.0 had been better conceived to begin with?

Now we have a new and improved Harp program that seeks to address its initial shortcomings. Yet it still limits eligibility to homeowners whose loans were purchased prior to May 31, 2009. This makes no sense. Tens of thousands of potential beneficiaries of this program are being excluded, increasing the likelihood that more homes will be lost to foreclosure than is necessary, which will create further downward pressure on home values.

Is it already time for Harp 3.0?

John Walsh is the president of Total Mortgage Services, a lender in Milford, Conn. He can be reached at jwalsh@totalmortgage.com.