HARP 2.0 : “Severely Underwater” Homeowners Get Low Mortgage Rates
The U.S. government's Home Affordable Refinance Program (HARP) continues reach the "severely underwater" homeowners for which it was intended.
In November, more than 129,000 HARP loans were closed nationwide. 24% of them were for homeowners whose loan-to-value (LTV) exceeded 125%. HARP volume has doubled since last year and is poised for a huge 2013.
HARP : Refinancing For Underwater Homeowners
HARP stands for Home Affordable Refinance Program. It was launched at a time when the U.S. economy had just slipped into recession; when the Eurozone economy was flailing; and in the aftermath of the high-profile collapse of Lehman Brothers.
Economic weakness had dropped mortgage rates to their lowest levels of all-time -- 5.13% on average -- and homeowners were eager to take advantage. Unfortunately, falling home values made this difficult.
Homeowners in places like San Francisco, California; New York City, New York; and Seattle, Washington found themselves without the requisite 20% home equity to refinance without needing mortgage insurance. As a result, few households refinanced at all -- there were no refinance programs for homeowners with "lost" home equity.
Part-economic stimulus and part-homeowner relief, the Home Affordable Refinance Program was built to get underwater homeowners access to low mortgage rates and low monthly payments without having to pay mortgage insurance.
Via HARP, the government told banks to treat "underwater" refinances differently. Banks 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 payments.
HARP was expected to reach 7 million households, and to help end the U.S. recession.
HARP 2.0 : 125% LTV Restriction Removed
When the government first launched HARP in 2009, hopes for the program were high. However, after two years and six months, fewer than one million HARP loans had been completed.
There were main reasons why HARP fell short of expectations.
First, banks which did HARP loans assumed a tremendous amount of liability. They were not only liable for the quality of the loans which they underwrote and approved, but via a program quirk, they also assumed liability for the quality of the loan as it was originally underwritten and approved years prior.
For example, if Chase approved a HARP loan to an existing Wells Fargo customer, Chase would be help responsible for errors in its loan process as well as errors in Wells Fargo's original loan process.
This is why "same-servicer" loans were so common with the Home Affordable Refinance Program -- banks didn't want to be liable for another lender's shoddy underwriting. This drastically limited the scope of the Home Affordable Refinance Program.
The second reason HARP failed to close as many loans as expected was because the 125% LTV limit proved to be too low. Homeowners in hard-hit states such as Nevada and Florida often found themselves in much larger negative equity positions than just 125% LTV. Some carried LTVs as high as 300 percent.
Therefore, to help HARP reach more U.S. households, the government gave the program an overhaul. Dubbed HARP 2.0, the new program remedied the original's strongest limitations.
HARP 2.0 (1) Indemnified lenders from prior underwriting errors, and (2) Removed the 125 loan-to-value restriction.
Not surprisingly, HARP has averaged 100,000 closed loans per month since March 2012.
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 quarterly tally :
- Q1 2012 : 2 percent of all HARP refinances were for LTVs over 125%
- Q2 2012 : 25 percent of all HARP refinances were for LTVs over 125%
- Q3 2012 : 27 percent of all HARP refinances were for LTVs over 125%
- November 2012 : 24 percent of all HARP refinances were for LTVs over 125%
HARP volume for loans over 125 percent remains strong. More than 30,000 Home Affordable Refinance Program loans closed in November 2012 -- a near 10-fold increase from HARP 2.0's first month.
Furthermore, in Nevada, where home values have sunk since late decade, 43% of last month's in-state refinances were via HARP, and with loan-to-values of more than 125%. Florida was a distant second at 26 percent.
The Home Affordable Refinance Program is slated to expire December 31, 2015.
Get HARP Mortgage Rates
The HARP mortgage program terminates at the end of this year. It may be replaced by HARP 3.0, or it may not. It may be replaced by the Merkley Mortgage, or it may not. We don't know what will happen next. For now, though, there's time to take advantage.
With mortgage rates near all-time lows and expected to rise through most of this year, conditions remain favorable for ultra-high LTV homeowners. If your mortgage is underwater, see how HARP can help. Get started with a rate quote.