Thursday, October 18, 2012

Higher Harp Loans starting to close?

Earlier this year, the HARP 2.0 refinance program opened up to homeowners whose mortgages are "severely underwater". HARP loans for ultra-high LTVs -- loan-to-value ratios in exceed of 125% --  now account for more than one-quarter of all HARP refinances completed nationwide.

HARP : Refinancing For Underwater Homeowners

HARP is an acronym. It stands for Home Affordable Refinance Program. Sometimes called the Obama Refi, it was created in 2009 as part of that year's economic stimulus program.
At the time, mortgage rates had been dropping sharply -- but home values had been, too. In places like Los Angeles, California; Miami, Florida; and Phoenix, Arizona, homeowners were watching 30-year fixed rate mortgage rates fall into the 4s but there was, literally, nothing they could do to take advantage.
There were no mortgage programs for homeowners with no home equity.
So, the government promoted the idea that if these homeowners could just get access to refinance; to lower their monthly mortgage payments,it would increase the national household cashflow, which would increase consumer spending, which would help to push the U.S. economy forward.
HARP was launched to meet this goal.
The HARP program told banks to treat home equity differently. It instructed them to ignore a homeowner's home equity percentage so long as that homeowner had a loan-to-value (LTV) of 125% or less, and history of on-time mortgage payment.

HARP 2 : Removing 125% LTV Restrictions

When HARP was first launched, it was expected to reach 7 million U.S. homeowners. After two years, however, government data showed that the program had reached not even one million households.
There were two main reasons why, it was determined.
First, the government was asking banks to underwrite more HARP loans, but also holding them responsible for due diligence errors made on the originally-underwritten home loan.
For example, if Wells Fargo was giving a HARP loan to an existing Bank of America customer, Wells Fargo would be accountable to Bank of America's original home loan approval, and any traces of fraud.
Banks don't like rules like that. In response, many chose to limit HARP access to their existing customers base -- "same-servicer" only.
Second, as it turned out, capped HARP's LTV at 125% proved to be limiting. Homeowners in hard-hit states such as Nevada and Florida found themselves in a much more negative position than just 125% LTV. Some carried LTVs as high as 300 percent.
So, in November 2011, to make HARP "better", the government re-released HARP as HARP 2.0, where the main changes were to (1) Indemnify lenders for much of a loan's due diligence and, (2) Remove the loan-to-value restrictions of the original Home Affordable Refinance Program.
Via HARP 2.0, today's homeowners can get unlimited LTV on their home loan, and can use any HARP-participating lender. With the changes, HARP is making progress toward its 7 million U.S. household goal.

HARP For LTVs Over 125% Gain Market Share

Fannie Mae and Freddie Mac launched HARP 2.0 in November 2011 but the program was not widely-adopted until March 2012. Since then, HARP loans for which the LTV exceeds 125% have gained market share.
The month-by-month tally :
  • March 2012 : 3.6% of all HARP refinances were for LTVs over 125%
  • April 2012 : 7.5% of all HARP refinances were for LTVs over 125%
  • May 2012 : 4.4% of all HARP refinances were for LTVs over 125%
  • June 2012 : 42.8% of all HARP refinances were for LTVs over 125%
  • July 2012 : 27.7% of all HARP refinances were for LTVs over 125%
  • August 2012 : 27.3% of all HARP refinances were for LTVs over 125%
Note the spike in June's HARP tally.  This is because HARP refinances can take up to 90 days to process at the nation's largest banks. Loan applications made when HARP 2 went "live" in March likely closed in June 2012.
HARP volume for loans over 125 percent remains strong today.

Get HARP Mortgage Rates

The HARP mortgage program is slated to terminate at the end of next year. There's no rush to refinance. However, with mortgage rates near all-time lows, today's market conditions are extremely favorable for ultra-high LTV homeowners.
If your mortgage is underwater and you want to know how HARP can help, get started with a rate quote.