HARP 2.0 : Underwater Homeowners Need Fewer Loans Over 125% LTV
One year ago, the Home Affordable Refinance Program (HARP) opened up for U.S. homeowners whose mortgages are "severely underwater".
Today, HARP loans for ultra-high LTVs -- loans for which the loan-to-value (LTV) exceeds 125% -- now account for more than one-fifth 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", HARP was launched in 2009 as part of that year's economic stimulus program.
At the time, mortgage rates had been dropping sharply. But, at the same time, home values were, too. In places like Los Angeles, California; Miami, Florida; and Phoenix, Arizona, homeowners watched 30-year fixed rate mortgage rates fall into the 4s but with little or no equity left in their properties, there was, literally, nothing they could do to take advantage.
The scenario was a catalyst for HARP. The government promoted the idea that if these underwater homeowners could only get access to refinance, they could lower their monthly mortgage payments, increase household cashflow, and boost consumer spending to help propel the U.S. economy ahead.
The HARP program told banks to treat home equity differently. It instructed them to ignore a homeowner's home equity percentage and to focus on a history of on-time mortgage payments.
Headlines read "Obama Waives Refi Requirements". U.S. homeowners jumped on the program.
HARP 2 : Removing 125% LTV Restrictions
When HARP was launched in 2009, it was meant to reach 7 million U.S. homeowners. After two years, though, government data showed the program failing to reach even one million households.
There were two main reasons for the shortfall, it was determined.
First, the government was asking banks to underwrite loans for HARP, but 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, plus any errors, omissions, or traces of fraud therein.
Banks don't like rules like that and, as a result, many banks offering HARP limiting access to their existing customers base only. These came to be known as "same-servicer" HARP loans, and it stunted the program's reach.
The second reason for HARP's shortfall was that HARP had been limited to homes with 125% LTV or lower. The figure proved to be limiting. Homeowners in hard-hit states such as Nevada and Florida found themselves in a much more negative-equity position than just 125% LTV. Some carried LTVs as high as 300 percent.
So, in November 2011, as an effort to make HARP "better", the government re-released the Home Affordable Refinance Program as HARP 2.0.
The main changes for HARP 2.0 were two-fold :
- Indemnify new mortgage lender from errors made by original mortgage lender
- Remove the loan-to-value restrictions so 125% LTV was no longer a limit
Because of these changes, today's HARP homeowners get access to unlimited LTV loans, and can use any HARP-participating lender. Since the changes, program volume has tripled. HARP is on pace to close 1.2 million loans in 2013.
HARP For LTVs Over 125% Lose Market Share
Fannie Mae and Freddie Mac launched HARP 2.0 in November 2011. The program was not widely-adopted until March 2012. It took 90 days for banks to close HARP loans at that time. This is why June 2012 remains the peak month for ultra-high LTV HARP loans.
Since that June 2012 peak, however, ultra-high LTV HARP loans have lost market share, slipping from 42.4 percent of all HARP loans to 21.8 percent in March 2013.
Ultra-high LTV Home Affordable Refinance Program closing, month-by-month :
- March 2012 : 3.7% 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 : 42.4% of all HARP refinances were for LTVs over 125%
- July 2012 : 27.9% of all HARP refinances were for LTVs over 125%
- August 2012 : 27.7% of all HARP refinances were for LTVs over 125%
- September 2012 : 26.2% of all HARP refinances were for LTVs over 125%
- October 2012 : 23.4% of all HARP refinances were for LTVs over 125%
- November 2012 : 23.6% of all HARP refinances were for LTVs over 125%
- December 2012 : 24.5% of all HARP refinances were for LTVs over 125%
- January 2013 : 24.9% of all HARP refinances were for LTVs over 125%
- February 2013 : 21.6% of all HARP refinances were for LTVs over 125%
- March 2013 : 21.8% of all HARP refinances were for LTVs over 125%
Demand for ultra-high LTV loans remains strong, but is decidedly lower as compared to just six months ago when home values weren't so high. The recovering U.S. housing market is reducing the need for severely-underwater mortgage refinancing.
The HARP program is good through December 31, 2015 -- but will we even need it?
Get HARP Mortgage Rates
The HARP mortgage program terminates more than 2 years from today. There's no rush to refinance. However, with mortgage rates near all-time lows, today's market conditions are favorable for underwater and ultra-high LTV homeowners.
The typical HARP homeowner saves more than 35% on their mortgage payment monthly. See how HARP can help you. Get started with a rate quote. It's fast and free.