Will We Even Need The HARP Refinance By 2014?
The Federal Home Finance Agency (FHFA) recently extended its Home Affordable Refinance Program (HARP) by two years. U.S. homeowners now have until December 31, 2015 to use the government's refinance program for "underwater mortgages".
However, as home values rise nationwide, the value of the HARP program drops among U.S. homeowners. People using HARP just aren't requesting those "super-high LTV" loans so much anymore.
The HARP program may be less common in 2014 and 2015.
HARP : Refinance Without Mortgage Insurance
The Home Affordable Refinance Program, which is sometimes called the "Obama Refi", was first launched announced in February 2009 as part of that year's economic stimulus.
The economy had just emerged from its largest financial crisis since the Great Depression of 1929. Major financial institutions had failed (e.g.; Lehman Brothers); some had been forced to merge (e.g.; Merrill Lynch); and, others were required to seek funds from the federal government (e.g.; AIG).
There was little confidence among U.S. investors. Stock markets sank, falling 54% before finally bottoming out March 6, 2009. Home values fell, too, as a sudden over-supply of homes combined with a dearth of qualified buyers which sent prices spiraling downward.
And, as all of this was happening, mortgage rates were starting what we now know to be the biggest Refinance Boom of all-time. Mortgage rates had dropped below 5 percent for the first time in history as investors sought "safe" assets.
Unfortunately, few homeowners were eligible to refinance.
As sinking housing market reduced homeowners' respective home equity, mortgage applicants often found themselves applying for loans for which the loan-to-value exceeded 80% -- even if they had originally put twenty percent down on the home -- and, by rule, LTVs over 80% require private mortgage insurance (PMI).
Via the government's refinance plan, homeowners using were given the chance to refinance to the day's low mortgage rates without incurring an increase in PMI. This meant that homeowners whom had initially made a 20% downpayment were eligible to refinance without PMI, irrespective of their loan-to-value.
Similarly, homeowners who initially made a 10% downpayment, and now found themselves owing more than their home was worth, could refinance without an increase in their PMI coverage.=
HARP reached 1 million households between 2009-2011. Then, in early-2012, the government the loosened the Home Affordable Refinance Program to help reach even more U.S. households.
Dubbed HARP 2.0, the second iteration made HARP refinancing simpler and faster. An additional 1 million HARP loans closed in 2012.
Today, with home values rising, there are fewer underwater mortgages nationwide. The HARP refinance program may run its course naturally. HARP 2.0 queries will ease gradually through 2013 and 2014 and, by 2015, the HARP program may no longer be needed at all.
HARP 2 : Median LTV Drops In 44 States
Among the traits of HARP 2.0 is that is allows for unlimited loan-to-value (LTV). Though the first five months of 2013, however, as home values have climbed, U.S. homeowners' need an unlimited LTV mortgage has waned.
Since HARP 2.0 launched, this website has logged more than 50,000 mortgage rate requests for the Home Affordable Refinance Program. The requests have come from all 50 states plus the District of Columbia, and representing every combination of property- and occupancy-type possible.
There's a stark difference in the nature of the HARP queries from 2012 as compared those from 2013.
- 2012 : The average HARP query required a 115 percent LTV
- 2013 : The average HARP query requires a 107 percent LTV
Not surprisingly, homeowners in 43 states plus Washington, D.C. report lower LTVs for their Home Affordable Refinance Program mortgage, and previously hard-hit states such as Nevada, Arizona and California lead the charge.
The following 10 states are showing the biggest improvement in median LTV for a HARP loan between 2012 and 2013, as self-reported by the applicants :
- Nevada : 15.21 point drop in LTV
- Arkansas : 14.42 point drop in LTV
- Arizona : 12.42 point drop in LTV
- Florida : 10.05 point drop in LTV
- Idaho : 9.55 point drop in LTV
- North Dakota : 9.33 point drop in LTV
- California : 9.20 point drop in LTV
- Kansas : 7.95 point drop in LTV
- Oregon : 7.92 point drop in LTV
- Michigan : 7.39 point drop in LTV
Meanwhile, on the spectrum's other end, homeowners of South Dakota report the largest gain in median LTV, with a 28.27 point gain between last year and this one. That's an outlier. The next closest "down" state -- New Mexico -- shows just a 3.17 gain and there are four remaining states which worsened less than 1 percent.
Short of Congress passing HARP 3.0, the Home Affordable Refinance Program may be on its way out.
Are You Eligible For HARP 2?
Since 2009, the Home Affordable Refinance Program has been a boon for underwater homeowners. Today, with mortgage rates sub-4 percent, the typical HARP homeowner saves 35% on average via the program.
How much can you save with HARP?
If you haven't checked your mortgage or your budget, you can get started with HARP online. See today's rates and get today's payments. Know how much money you'll save with HARP -- a program which may be a lot less effective if U.S. home values continue to climb.