U.S. homeowners have lost trillions of dollars in home equity since April 2006. Yet, the U.S. Refinance Boom continues.
Triggered by lifetime-low mortgage rates and generous refinance programs for underwater homeowners including HARP 2.0, the VA-to-VA refinance, and the FHA Streamline Refinance, refinance closings from this year's first quarter blew past Wall Street estimates.
Today, through various program, literally millions of U.S. homeowners could refinance to save money. The next 12 months may be heavy on mortgage refinancing -- especially should HARP 3.0 pass Congress.
HARP : Mortgages For Underwater HomeownersSince 2009, millions of U.S. households have refinanced despite falling home equity.
Through the first three months of this year, for example, data from Freddie Mac shows that the median appreciation of a refinanced home was -8%, marking the 15th straight quarter during which lenders refinanced an "underwater mortgage" more often than a home with existing home equity.
Not surprisingly, this multi-year streak began near the month the government launched its Home Affordable Refinance Program (HARP), which is a component of the Making Home Affordable program.
Sometimes called the "Obama Refi", HARP is the refinance product for homeowners with lost equity. Via the program, homeowners with negative equity can refinance with nearly zero underwriting verifications to make beyond proving a one-year perfect mortgage payment history.
HARP got its start in 2009. The economy was sinking and mortgage rates were dropping. Unfortunately, however, because home values were dropping, too, few homeowners could take advantage of the day's low rates.
To refinance would have meant to pay private mortgage insurance (PMI) and PMI rendered refinancing impractical.
In response, the government designed HARP.
HARP's main draw was that it allowed homeowners whose loan-to-value exceeded 80% to refinance without having to increase their current mortgage insurance coverage. This meant that homeowners who had originally made a 20% downpayment -- but now had little or no equity -- were eligible to refinance without having to take on PMI.
Prior to HARP, homeowners with lost equity could only refinance via a "cash-in" refinance. Now, though, with HARP in the mix, nearly anyone with a Fannie Mae- or Freddie Mac-backed mortgage was refinance-eligible without incurring new PMI.
More than 2.6 million U.S. households have used HARP since 2009.
HARP 2.0 : More Options For "Underwater Mortgages"HARP had early success in its first two years. To build on that success, then, the government made updates to help the HARP program reach more U.S. households.
Relaunched in late-2011 as HARP 2.0, the Obama Refi was changed to allow unlimited loan-to-value, among other updates. No matter how far underwater you were with your home, with HARP 2.0, refinancing was a possibility.
Your home's LTV could be 200% or higher and you'd still be HARP-eligible.
The move toward unlimited LTV was a boon to the HARP program in places such as Phoenix, Arizona; Orange County, California; and Las Vegas, Nevada -- three areas in which homes values had plunged between 2007-2009. Homeowners in these areas were often severely underwater and, today, HARP refinances still account for more than half of all the nation's HARP closings.
"The President waives refi requirements", said headlines. Two years later, HARP 2.0 accounts for 20 percent of refinance transactions nationwide.
Furthermore, underwater homeowners are taking advantage. Look at the median home appreciation of all Freddie Mac refinanced mortgages since 2011. HARP 2.0 is working.
- HARP 1.0 : Median refinanced home appreciation of -3%
- HARP 2.0 : Median refinanced home appreciation of -9%
Underwater homeowners exploit the Home Affordable Refinance Program for all of its benefits, and the program is scheduled to terminate December 31, 2015. HARP refinance volume remains strong.
"A Better Bargain" : Readying For HARP 3.0Today, the Home Affordable Refinance Program is meant for mortgages backed by Fannie Mae and Freddie Mac only. Soon, that may change. HARP may be extended to non-government loans including Alt-A loans, subprime loans, and portfolio loans, too.
The purported "HARP 3.0" program is sometimes called #MyRefi and has also been referred to as "A Better Bargain" by the White House. The program has been slowly working its way through Congress, and may pass as law later this year.
There have even been some HARP 3.0-like bills including the Merkley Mortgage which is already in effect; and The Responsible Homeowner Refinancing Act of 2013, a bill sponsored by Senators Barbara Boxer and Robert Menendez. Both programs -- if widely adopted -- could open HARP-like opportunities to millions of additional U.S. homeowners.
Other potential features of a HARP 3.0-like program include changing the program eligibility date from May 31, 2009 to some date in 2011; offering more lenient terms on loans of 15 years or fewer; and making softer requirements for HARP investor loans.
Check Your HARP Mortgage EligibilityFor today's underwater homeowners, the Home Affordable Refinance Program offers low mortgage rates and simpler underwriting regulation. If your mortgage is HARP-eligible, you stand to lower your mortgage payment by as much as 25%.
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