The traditional home refinance is changing.
The result of extra-forgiving loan programs including HARP 2.0, the VA-to-VA refinance, and the FHA Streamline Refinance, today's underwater homeowners are getting access to low rates which would have been unavailable just a few years ago.
And millions more homeowners could join the boom. Should HARP 3 pass, and should lenders continue to loosen FHA loan requirements, the number of U.S. homeowners eligible to refinance -- despite negative equity -- would likely balloon.
U.S. homeowners are refinancing with less home equity than ever before.
Since 2009, millions of U.S. households have refinanced despite having little or no home equity. Some have refinanced via the VA Streamline Refinance and others via the FHA Streamline Refinance. Both programs, not coincidentally, waive home appraisals.
More than 3 million others have refinanced via the Home Affordable Refinance Program.
Sometimes called the "Obama Refi", the HARP loan refinances homes for homeowners with lost home equity. Via HARP, there are few verifications beyond proof of a good mortgage payment history dating back 12 months.
HARP got its start in 2009.
At the time, the U.S. economy was sinking and mortgage rates were dropping. Unfortunately, home values were down, too, so few homeowners were eligible to refinance without taking on private mortgage insurance (PMI).
In many cases, taking on PMI wiped out the benefits of a new, low rate.
Yet, the typical homeowner stood to save $3,000 annually via refinance and the government knew it. It also knew that an extra $3,000 per household would boost consumer spending and help stave off recession.
To help make refinances possible, the government created the Home Affordable Refinance Program (HARP).
The main draw of the government's HARP mortgage program was that it allowed homeowners whose loan-to-value exceeded 80% to refinance without an increase to 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 This meant that homeowners who had originally made a 20% downpayment -- but now had little or no equity -- were eligible to refinance without needing PMI at all.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 were required to do a "cash-in" refinance to refi without needing PMI. Post-HARP, the cash-in mortgage nearly went extinct.
Between January and March 2014, Freddie Mac data shows the median appreciation of a refinanced home was -8%, marking the 19th straight quarter during which lenders refinanced an "underwater mortgage" more often than a home with existing home equity.
Not surprisingly, this 19-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.
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.
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. February 2014 HARP refinances were the fewest n more than two years,
To keep pace with government targets, there is talk that HARP will get a second overhaul. HARP 3 may be coming.
Today, the Home Affordable Refinance Program is meant for mortgages backed by Fannie Mae and Freddie Mac only. In the future, 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.
Also, 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.
Other potential features of a HARP 3.0-like program 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.
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 28% annually on their mortgage payments.
See what the HARP mortgage can do for you. Get started with a quote today.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2015 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)