The Obama Refi Plan Could Fall Way Short

When the White House first entertained the thought of a massive GSE refi plan it had high hopes that eventually $1 trillion of Fannie Mae/Freddie Mac underwater loans might be restructured, resulting in annual savings north of $20 billion a year for consumers – money that could immediately be injected into the U.S. economy. On Monday morning the Obama refi plan (being conducted via HARP) was officially unveiled. Hopes are running high that thousands upon thousands will take advantage of the program. But the big question remains: will they? A new report from Keefe, Bruyette & Woods suggests that the answer to that question is no. The company writes: “While some potential changes, such as a waiver of reps and warranties on HARP loans, could be meaningful in terms of raising HARP volume sharply, the numbers are still likely to be small relative to the mortgage market as a whole. Even if HARP volume doubles and equals $250 billion in volume over the next two years, it would still mean that HARP volume would account for about 10% of total mortgage volume. Further, mortgage rates have increased recently, which is likely to result in prepayment speeds tapering off after 4Q11. As a result, we believe that the most likely impact of HARP is an extension of the mini refinance wave through mid-2012.”