Posted May 29, 2014Tweet
In late-2011, the Home Affordable Refinance Program (HARP) was made available to U.S. homeowners whose mortgages were "severely underwater". The program was a hit, and help homeowners to refinance.
At its peak, HARP loans for which loan-to-value (LTV) exceeded 125% accounted for more than 40 percent of all HARP loans closed. Today, however, with home prices rising, fewer homeowners need HARP's high-LTV option.
In March 2014, HARP loans over 125% LTV accounted for a paltry 12 percent of overall HARP closings.
HARP is an acronym. It stands for Home Affordable Refinance Program. Sometimes called the "Obama Refi", HARP was launched in 2009 as part of that year's economic stimulus program.
At the time, current mortgage rates had been dropping sharply. Meanwhile, home values were doing the same.
In places like Los Angeles, California; Miami, Florida; and Phoenix, Arizona, homeowners witnessed 30-year fixed rate mortgage rates dropping to the 4s. However, because these homeowners had little or no equity left in their properties, there was -- quite literally -- nothing they could do to benefit from low rates.
That's when the Home Affordable Refinance Program was first proposed.
As part of its economic stimulus programs, the government was promoting the idea that if underwater homeowners could just get access to a refinance, they would be able to lower their monthly mortgage payments, thereby increasing household cash flow, and boosting consumer spending which would help propel the U.S. economy recovery.
HARP mortgage guidelines instructed U.S. banks to ignore a homeowner's specific home equity for a refinance and, instead, to focus on a homeowner's other loan traits, such as its history of on-time mortgage payments.
Headlines read "Obama Waives Refi Requirements". U.S. homeowners jumped on the program.
HARP was originally meant to reach 7 million U.S. homeowners. However, through the program's first two years, it had failed to reach even one million households. The government determined that there were two key reasons for the shortfall.
The first reason HARP was falling short was because the government was asking banks to underwrite loans for the Home Affordable Refinance Program, but then holding them responsible for due diligence errors made on the loan prior to the refinance.
For example, if Wells Fargo was giving a HARP loan to an existing Bank of America customer, Wells Fargo would be accountable to Bank of America's original home loan approval, plus any errors, omissions, or traces of fraud which occurred on the original underwrite.
Rules like that will scare a bank so, as a result, few lenders gave HARP access beyond their existing customers base. These loans came to be known as "same-servicer" HARP loans. The lack of "cross-servicer" loans hindered HARP's progress.
The second reason HARP was falling short was because program guidelines restricted HARP loans to homes with LTVs of 125% LTV or less. This was restrictive to homeowners in hard-hit states such as Nevada and Florida whose negative-equity positions were much greater than 125% LTV.
Some homeowners had LTVs as high as 300 percent.
So, in November 2011, as an effort to make HARP "better", the government re-released the Home Affordable Refinance Program as HARP 2.0.
The main changes for HARP 2.0 were two-fold :
The changes gave U.S. homeowners access to unlimited LTV loans which could be handled by any HARP-participating lender. Since the program update, HARP volume has tripled. More than 3 million HARP loans have closed since the program's inception.
The need for ultra-high LTV loans is waning, however.
HARP 2.0 launched in November 2011 and, by June 2012, loans over 125 percent LTV accounted for more than 40% of total HARP volume.
This would be the peak for ultra-high LTV HARP loans, though; a function of pent-up demand, falling mortgage rates, and stagnant U.S. home prices.
Since June 2012, with home values rising as much as 25% in some U.S. markets, requests for HARP loans over 125% have steadily dropped. The reduction since last summer has been swift.
Demand for ultra-high LTV loans is decidedly lower as compared to last year.
Rising home values are diminishing the need for HARP loans over 125% LTV, a trend which will likely continue through 2014, and into 2015 when the Home Affordable Refinance Program is slated to expire.
HARP concludes December 31, 2015. There are no plans to extend HARP currently.
The HARP mortgage program has fewer than 2 years left in its life, but that's still plenty of time to weigh your options and apply for a loan. Plus, with mortgage rates at a one-year low, market conditions are favorable for all homeowners to save money each month.
The typical HARP homeowner saves more than 27% on their mortgage payment monthly. See how HARP can help you. Get started with a rate quote today. Rates are available online at no cost and with no obligation. Your social security number is not required to get started.
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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