HARP Accounts for 1 in 5 Refinances in May!

With the help of record-low mortgage rates, HARP refinances surged in May, accounting for 20 percent of all loans refinanced by the GSEs, FHFA announced Monday.

For the month of May, 67,456 loans were refinanced through HARP, and the total number of loans refinanced by Fannie Mae and Freddie Mac for the month was 341,209. The one in five ratio of loans refinanced through HARP is the largest increase since the program’s 2009 inception.

“These numbers show HARP 2.0 is accomplishing the goals set forth—to provide relief to borrowers who might otherwise be unable to refinance due to house price declines,” said FHFA Acting Director Edward J. DeMarco. “Borrowers with Fannie Mae- or Freddie Mac-backed loans who are current on their underwater mortgages are taking advantage of the opportunity offered by HARP 2.0.”

The number of underwater borrowers who found relief through HARP also saw a significant increase. Year-to-date through May, 78,273 refinances were completed for underwater borrowers compared to 59,991 refinances for underwater borrowers for the entire year of 2011.

Since the program began, Fannie Mae and Freddie Mac have refinanced 1.3 million loans through HARP.

In March 2012, the GSEs launched HARP 2.0, which allowed mortgages with a loan-to-value (LTV) ratio of 125 percent or higher to be eligible for refinancing.

Following this change, the percentage of those with high LTVs who received refinancing doubled. In May, borrowers with LTVs greater than 105 percent accounted for 32 percent of HARP refinances, up from the 15 percent average in 2011.

The percentage of those who opted for shorter term 15- and 20-year mortgages increased to 19 percent in May compared to the 10 percent average in 2011. Choosing shorter term mortgages over a 30-year mortgage helps build equity more quickly.

In Nevada, Arizona, Michigan and Florida, HARP refinances accounted for 40 percent of all refinances in those states compared to the 20 percent nationwide average.

In Nevada and Arizona, underwater borrowers represented more than half of those refinanced through HARP, and in Florida, Idaho, and California, underwater borrowers represented 40 to 50 percent of HARP refinances.

By: Esther Cho

Expanding HARP to Prevent Defaults and Stimulate Economy

By: Esther Cho

While seeming to recover, the housing market is still undoubtedly fragile, and there are millions of underwater borrowers who continue to struggle with making payments. While HARP proposes to address these concerns, the program has been limited in its ability to reach the masses.

Through the Responsible Homeowner Refinancing Act of 2012 introduced by Democratic Sens. Bob Menendez (D-New Jersey) and Barbara Boxer (D-California), a new HARP 3.0 would break down barriers preventing millions more from refinancing.

During a hearing on Thursday before a senate subcommittee, industry experts and leaders offered testimony on how the proposed legislation could impact the economy.

Mark Zandi, chief economist for Moody’s Analytics, delivered a testimony in which he said, “Policymakers should act to substantially increase mortgage refinancing activity.”

When first introduced, the Obama administration expected HARP to refinance between 4 and 5 million homeowners, but FHFA estimates show that since its 2009 inception, the program has refinanced close to 1.1 million borrowers as of February 2012.

In late 2011, HARP underwent an expansion to allow borrowers with loan-to-value (LTV) ratios higher than 125 percent to apply, among other changes.

Acknowledging that it takes time for servicers to implement new changes, Zandi said in his written testimony that HARP refinancings in early 2012 appear to have run close to 50,000 per month, up from 30,000 per month since the program began. Zandi also noted reports from the Mortgage Banks Association showing a pickup in applications for refinancing.

While these changes have helped to encourage more activity, Zandi expressed his support for more changes.

“More refinancing will mean fewer borrower defaults and more money in the pockets of homeowners, supporting the recovery through a quick and sizable cash infusion at no meaningful cost to taxpayers,” he said.

If the proposed expansions are fully implemented, Zandi said the legislation would increase eligibility to nearly 21.5 million borrowers.

Under the Responsible Homeowners Act, borrowers with LTVs lower than 80 percent and non-GSE loans would be eligible for the program. Currently, HARP only includes Fannie Mae and Freddie Mac loans.

Overall, Zandi said the broader economy, taxpayers, and homeowners, who are expected to save $2,500 to $3,000 a year, will benefit from refinancing.

Though, Zandi does acknowledge a loss for one segment: investors in mortgage backed securities.

“While the agencies would lose some interest income on their $1.2 trillion in mortgage securities and whole mortgage loans, under reasonable assumptions that would be offset by lower default rates on refinanced loans,” he said.

In a calculation, Zandi said HARP refinancings totaled 4.2 million, private investors would receive about $6.5 billion less in annual interest income.

While investors may not be pleased with their return due to low interest rates, Zandi said, “they were aware of this prepayment risk when they purchased their securities.”