Rising U.S. Home Values Phase Out HARP 2.0 Mortgage Program
The Home Affordable Refinance Program (HARP) is down to its last two years. U.S. homeowners have until December 31, 2015 to use the popular "Obama Refi". However, rising home value may render HARP's last quarters moot.
Underwater mortgages are less essential to U.S. housing as compared to when HARP launched last decade. U.S. homeowners are requesting fewer "high-LTV" loans and, in many states, the median LTV request is dropping.
Unless HARP 3 passes in 2014, there will likely be fewer HARP closings nationwide.
HARP : Refinance Without Mortgage Insurance
The Home Affordable Refinance Program was first 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. Some 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 federal aid from the 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 to send prices spiraling downward.
Meanwhile, as all of this was happening, mortgage markets were entering what we now know to be the biggest Refinance Boom of all-time. For the first time in history, mortgage rates had dropped below 5 percent as investors sought "safe" assets.
Unfortunately, few homeowners were eligible to claim such low rates.
The sinking housing market reduced the respective home equity U.S. homeowners held so mortgage applicants typically found themselves applying for loans for which the loan-to-value exceeded 80%.
LTVs over 80% required private mortgage insurance (PMI), for which the cost offset the savings of refinancing to a low rate.
That is, until HARP.
When the government launched the Home Affordable Refinance Program, it included a clause which allowed homeowners to refinance without incurring new PMI. Homeowners whom had initially made a 20% downpayment, but had since lost that equity, could refinance without have to pay PMI, irrespective of their current loan-to-value.
Similarly, homeowners who initially had made a 10% downpayment but now found themselves owing more than their home was worth, would be able to refinance without an increase to their existing PMI coverage.
HARP reached 1 million households between 2009-2011. Then, in early-2012, the government the loosened the Home Affordable Refinance Program to expand its reach.
Dubbed HARP 2.0, the second iteration made HARP refinancing simpler and faster. An additional 1 million HARP loans closed in 2012 and close to another one million closed in 2013.
However, the pace of HARP closings is slowing and, as home values continue to climb, the Home Affordable Refinance Program may run its course naturally. By the end of 2015, the HARP program may no longer be needed at all.
HARP 2 : Median LTV Drops In 35 States
Among the traits of HARP 2.0 is that is allows for unlimited loan-to-value (LTV). Though 2013, however, as home values have climbed, U.S. homeowners' need for an unlimited LTV mortgage has waned.
This website has logged tens of thousands mortgage rate requests for the Home Affordable Refinance Program. The requests have come from all 50 states plus the District of Columbia, and represent 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 the last quarter of 2013.
- All of 2012 : The average HARP query required a 115 percent LTV
- Q4 2013 : The average HARP query requires a 104 percent LTV
Not surprisingly, homeowners are requesting lower LTVs in 35 states for their respective Home Affordable Refinance Program mortgages. Previously hard-hit states such as Nevada and Arizona lead the charge.
These 10 states account for the largest median LTV reductions in HARP loan requests between 2012 and Q4 2013, as self-reported by the applicants :
- Arizona : 21.3 point drop in LTV
- Arkansas : 21.1 point drop in LTV
- Nevada : 18.7 point drop in LTV
- Oregon : 12.2 point drop in LTV
- West Virginia : 11.8 point drop in LTV
- Washington, D.C. : 11.6 point drop in LTV
- Florida : 11.1 point drop in LTV
- Washington : 10.7 point drop in LTV
- North Dakota : 9.3 point drop in LTV
- Utah : 9.3 point drop in LTV
Meanwhile, on the spectrum's other end, homeowners of South Dakota report the largest gain in median LTV, with a 14.3 point gain between last year and Q4 2013. That's an outlier. The next closest "down" state -- Alaska -- shows a 10.3 gain.
Short of Mel Watt passing HARP 3.0, the Home Affordable Refinance Program may be on its way out.
Are You Eligible For HARP?
Since 2009, the Home Affordable Refinance Program has been a boon for underwater homeowners. The typical HARP homeowner saves 25% on average via a HARP refinance. How much would you save with HARP?
Checked your mortgage online, and get started with rate quote. See how much money you can save with a refinance before your home values rise too high to take advantage.