HARP 2.0 : Changing The Way We Refinance, Plus A Look Ahead To HARP 3.0
The traditional home refinance is changing.
Triggered by ultra-low mortgage rates and the extra-forgiving underwriting of programs such as HARP 2.0, the VA-to-VA refinance, and the FHA Streamline Refinance, underwater homeowners are getting access to today's low rates, too.
Furthermore, millions more could join the boom. HARP 3 may pass within weeks, and the rules for FHA MIP may loosen as the agency recovers from its losses of last decade.
The face of the American Refinance is changing. Refinancing homeowners have lower home appreciation rates than ever before. It's a trend expected to continue through 2014 and into 2015.
HARP : Mortgages For Underwater Homeowners
Since 2009, defying conventional wisdom, millions of U.S. households have refinanced despite have little or no home equity.
Between October and December 2013, Freddie Mac data shows the median appreciation of a refinanced home was -9%, marking the 18th straight quarter during which lenders refinanced an "underwater mortgage" more often than a home with existing home equity.
And, not surprisingly, this 18-quarter streak began around the same month that the government launched its Home Affordable Refinance Program (HARP), a component of the the 2009 Making Home Affordable program.
Also known as the "Obama Refi", HARP refinances homes for homeowners with lost home equity.
Via HARP, homeowners with negative home equity can refinance quickly and easily. There are few verifications beyond proof of perfect mortgage payment history dating back 12 months.
HARP got its start in 2009.
The economy was sinking, mortgage rates were dropping. Unfortunately, home values were down, too, and few homeowners could take advantage of the day's low rates without taking on private mortgage insurance (PMI) which would have rendered the refinance impractical.
The typical homeowner stood to save $3,000 annually with access to the day's low rates and the government knew it. That $3,000 per household could consumer spending and the U.S. economy, the government figured.
In response, it made HARP.
The main draw of the HARP mortgage program was that it allowed homeowners whose loan-to-value exceeded 80% to refinance without having to increase their current private 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 This meant that homeowners who had originally made a 20% downpayment -- but now had little or no equity -- were eligible to refinance without needing PMI at all.
Prior to HARP, underwater homeowners could only do a "cash-in" refinance. Post-HARP, nearly anyone with an eligible mortgage could refinance without trouble.
Since its launch, more than 3 million U.S. households have used HARP to refinance.
HARP 2.0 : More Options For "Underwater Mortgages"
HARP was successful early on, but the program was reaching too few U.S. households, the government felt. The government had aimed to help 7 million households. After two years, though, HARP hadn't reached even one million.
So, to boost HARP closings, in late-2011, the government loosened the programs requirements and relaunched the Obama Refi as HARP 2.0.
"The President waives refi requirements", said headlines.
The biggest difference between the original HARP and HARP 2 was that HARP 2 allowed for unlimited loan-to-value on a refinanced home. No matter how far underwater you were with your home and your loan, with HARP 2.0, refinancing was possible
The release of unlimited LTV was a boon to HARP refinancing 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 typically severely underwater and, today, HARP accounts for more than 40% of all refinances in Georgia, Nevada, and Florida.
HARP 2 has changed how refinancing is done. Cash-in refinances are more rare today. Underwater refinances are common. Just look at how underwater mortgages have affected the median home appreciation of all refinanced loans via Freddie Mac since 2011.
- HARP 1.0 : Median refinanced home appreciation of -3%
- HARP 2.0 : Median refinanced home appreciation of -10%
If not for sharply rising home values over the last 12 months, the difference would be even more stark.
The Home Affordable Refinance Program is scheduled to terminate December 31, 2015 but, once again, refinance volume is slipping. November 2013 HARP refinances were the fewest in two years.
In order to keep pace with government targets, HARP may soon get its second overhaul. HARP 3 may be coming.
"A Better Bargain" : Readying For HARP 3.0
Today, the Home Affordable Refinance Program is meant for mortgages backed by Fannie Mae and Freddie Mac only. Soon, however, that may change. The HARP program may be extended to include non-government loans such Alt-A loans, subprime loans, and portfolio loans as well.
The new program has been labeled #MyRefi and "A Better Bargain" by the White House. Markets call it HARP 3. The program has been slowly working its way through Congress and, although currently stalled, it may soon go live in some form.
It also helps that new FHFA Director Mel Watt is believed to be HARP 3-friendly.
The FHFA runs Fannie Mae and Freddie Mac, the groups whose mortgages would be affected by changes to the Home Affordable Refinance Program. Watt could release changes to HARP on his own, or he could enlist the help of Congress where HARP-like bills have been written.
The Merkley Mortgage is one such example.
Already in effect in Oregon, its successful pilot run has been extended and broadened to reach more homeowners. Plus, The Responsible Homeowner Refinancing Act of 2013, a bill sponsored by Senators Barbara Boxer and Robert Menendez, remains active in Congress.
Either program -- if widely adopted -- could open refinancing to millions of additional U.S. homeowners.
Other potential features of a HARP 3.0-like program may 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 Eligibility
There are millions of U.S. homeowners currently eligible for HARP but who have not used it to refinance. You may be among them.
The Home Affordable Refinance Program offers low mortgage rates, simpler underwriting standards, and the typical refinancing household saves 26% annually on their mortgage payments.
See what the HARP mortgage can do for you. Get started with a quote today.