Posted August 5, 2014

As Today’s HARP Mortgage Rates Drop, The Government Want To Help You Refinance

HARP refinance loans completed by LTV, since the launch of HARP in late-2011

U.S. homeowners are using the HARP loan with less frequency these days.

Despite the lowest mortgage rates in 14 months and simpler loan guidelines, there are more than 667,000 U.S. households eligible for the Home Affordable Refinance Program which have yet to use their eligibility. 

The typical refinancing household saves more than 30% monthly and HARP expires at the end of next year. It's a terrific time to look at your HARP loan eligibility.

Click for today's live HARP rates.

HARP Refinance : Loans For Underwater Homeowners

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. Home values were doing the same.

30-year fixed-rate mortgage rates had moved to the 4s. Unfortunately, homeowners nationwide -- including those in Los Angeles, California; Miami, Florida; and Phoenix, Arizona -- were unable to refinance. As home values cratered, LTVs got squeezed, leaving homeowners with too little equity to refinance.

That's when the Home Affordable Refinance Program was first proposed.

In a series of economic stimulus programs, the government promoted the idea that if homeowners who had lost home equity could only get access to a refinance, they could capitalize on low rates and lower their monthly mortgage payments.

With an increase in household cash flow, consumer spending would get a boost which, the government reasoned, would help propel the U.S. economy into a recovery.

When HARP was passed, its guidelines stated that a homeowner's home equity was irrelevant for purposes of a refinance. So long as the consumer met several basic criteria, including a history of on-time payments, the existing loan would be HARP-eligible.

The most popular headline regarding HARP read "Obama Waives Refi Requirements". The program was an instant hit.

HARP 2 : Removing 125% LTV Restrictions

When HARP first launched, it was meant to help 7 million U.S. homeowners. It was clear within its first two years, though, with less than even one million closed, that HARP would fail to reach its target.

One of the reasons why HARP was falling short was that the government was asking banks to underwrite HARP loans as a streamlined-like refinance, but also holding them responsible for whatever due diligence errors the previous lender may have made on the same loan.

For example, if Wells Fargo was making 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 fraud which may occurred on the initial underwrite.

Banks were scared by these rules. To limit their risk, then, most restricted HARP loans to their existing customer base only. Loans like these came to be known as "same-servicer" HARP loans.

The lack of "cross-servicer" loans hindered HARP's progress.

A second reason HARP was falling short was because the program restricted HARP loans to homes with an LTV of 125% LTV or less. This prevented homeowners in hard-hit states such as Nevada and Florida from using HARP because many had negative-equity positions greater that what HARP would allow. 

After two-plus years of HARP, then, in an effort to make HARP "better", the government re-released the Home Affordable Refinance Program as "HARP 2.0".

There were two main changes in HARP's second release :

  1. New mortgage lenders were indemnified from errors of the original lender
  2. All loan-to-value restrictions were removed; 125% LTV was no longer a limit

The changes to HARP gave U.S. homeowners access to unlimited LTV loans, plus every HARP-participating lender. HARP volume tripled in the next 12 months and, today, more than 3 million HARP loans have closed in total.

Get today's mortgage rates now.

HARP Refinance Closings Slow Into 2014

In HARP 2's first month, loans with LTVs over 125 percent accounted for more than 40% of all HARP loans closed. This proved to be a peak and an anomaly; the result of pent-up demand and a rush to use HARP 2.

In its first year, ultra-high LTV loans were 25% of all HARP 2 loans. Today, loans over 125 LTV account for barely 10 percent of all HARP loans, and that percentage is sinking.

As home values have climbed nationwide -- as much as 25% in some markets -- the need for ultra-high LTV HARP loans over 125% is less.

  • May 2013 : 19% of all HARP loans required LTVs of 125 or more
  • May 2014 : 10% of all HARP loans required LTVs of 125 or more

Rising home values are diminishing the need for high-LTV HARP refinance, a trend which is expected to continue through the Home Affordable Refinance Program's expiration next year.

HARP concludes December 31, 2015. There are no plans to extend it.

Get HARP Mortgage Rates

HARP mortgage rates are at a 14-month low and the program is slated to expire at the end of next year. You may be one of the hundreds of thousands of homeowners currently HARP-eligible. It's a terrific time to see what you can save.

The typical HARP homeowner is saving 30% or more on a refinance. Get started with a free mortgage rate quote today. Rates are available online with no social security number required to get started and no obligation to proceed.

Click to get today's live rates.

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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