Since the Home Affordable Refinance Program was introduced in April 2007 by the Federal Housing Finance Agency and the Department of Treasury, more than 2.2 million borrowers have obtained a refinance to their mortgage loans.
With an estimated 2.7 million homeowners underwater on their mortgages throughout the country, there are many more borrowers eligible to benefit from HARP. That is why FHFA announced to extend the program, which was set to expire at the end of this year, by two years to last through 2015.
“Proving it a useful tool for reducing risk, we are extending the program so more underwater borrowers can benefit from lower interest rates,” said FHFA acting director Edward DeMarco in a written statement when he made the decision to prolong HARP.
To be eligible for a HARP refinance, a homeowner’s loan must be owned or guaranteed by Fannie Mae or Freddie Mac and the mortgage must have been sold to one of the government-sponsored enterprises on or before May 31, 2009.
Additionally, the current loan-to-value ratio must be greater than 80% and the borrower has to be current on their mortgage payments with no delinquencies in the last six months as well as no more than one late payment over the course of one year.
According to the Mortgage Bankers Association, HARP loans accounted for nearly a third of all refinancing applications last year. MBA said approximately 1.1 million borrowers used the program in 2012, which was the same amount of consumers who took advantage of HARP during the first three years it was available.
Even though it is pretty resounding among many industry insiders that extending HARP is the right decision, there are some who believe even more needs to be done to the program so a greater amount of consumers can utilize it.
Mark Greco, president of 360 Mortgage Group, said HARP accounted for about 80% of the Austin, Texas-based privately owned mortgage banks production in 2012. He cited that the company does not have any LTV restrictions and the product is available as a “come one, come all.”
“HARP has been a huge success for 360, Fannie Mae, and obviously the biggest winner is the consumer,” Greco said in an interview. “Literally, you have endured good quality people with high integrity that did not look at their homes as an investment but homes for their families and despite being upside down with this investment, they looked at the fact that they made an obligation and continued to perform on that obligation. Overall, HARP has been a win-win-win across the board.”
But Greco thinks more can be done to enhance HARP beyond unlimited LTVs. Greco said he is a supporter of HARP 3.0, which would allow borrowers who have nonagency guaranteed securities to qualify for a refinance through the program.
Initially, Fannie Mae said approximately 3 million homes were eligible for HARP 2.0. If this program was expanded to include private securities, about 8 million households would be able to take advantage of today’s lower interest rates.
“If Congress would step up and facilitate HARP 3.0, it would open up the agencies to take in those securities and provide an outlet for those people to be able to refinance their homes even though they may be upside down or underwater on the equity in their home.” Greco added. “They keep ‘kicking the can down the road’ with HARP 3.0 and we’ve already seen interest rates rise from January of this year to now and over the last six weeks. If they don’t take action soon, a lot of those borrowers are going to miss the opportunity to take advantage of lower interest rates that the markets had to offer.” Greco believes interest rates will stay relatively low, somewhere in the 4.5% to 5.5%, compared to historical rates, through 2014. He added that it will all depend upon what the Treasury does with buying mortgage-backed securities and if this continues, rates will stay low.
Another problem for HARP is that completing the loan application process has been time consuming for many lenders, lasting as much as much as four to five months, which only creates more tension between the parties involved in the transaction.
“Unfortunately, a too good to be true perception coupled with long lines to refinance and repeated ‘no’s’ from lenders who are not utilizing HARP to its fullest extent have left many disgruntled to enter another arduous loan process,” a spokesperson for Quicken Loans told Origination News is an email.
There remains discontent between borrowers and lenders despite a consumer obtaining an average savings from a HARP refinance around $200 month with an average rate reduction of 1.75%. At this rate, a lender would save $2,400 per closed loan per year and $74,000 per lifetime (assuming a 30-year mortgage), the spokesperson said.
Overall, the economic stimulus would be substantial, reaching up to $6.5 billion.
“We are seeing true signs on the street of an economic recovery and HARP 3.0 would certainly firm that up,” Greco said. “When people have extra money in their pocket, they spend it.”