The HARP refinance has been a staple of the U.S. housing market recovery. Yet, with mortgage rates at their low point for the year and at their best levels in close to two years, HARP loan activity is dropping.
There were fewer HARP loans closed in November than during any month since HARP 2 launched four years ago. Yet, the typical HARP-refinancing household saves more than 35% annually on their mortgage.
The government believes HARP's slowdown in an issue of "awareness"; consumers tell officials that the program appears "too good to be true", and that it "must be a scam".
It's not. HARP is real and more than 722,000 U.S. households are currently "in the money" to refinance their loan via HARP but few are actually doing it.
Via an outreach program which includes mailers and town halls, the Federal Housing Finance Agency wants today's eligible HARP households to get started on their refinances now.
If you're a current U.S. homeowner and think your mortgage rate is too high for today's market, it's a terrific time to take a look at your HARP loan eligibility.
HARP expires at the end of 2015. Mortgage rates may never be much lower.
HARP is an acronym. It stands for Home Affordable Refinance Program. Sometimes called the "Obama Refi", the HARP program was launched in 2009 as part of that year's economic stimulus program.
At the time, current mortgage rates had been dropping and so were U.S. home values.
30-year fixed-rate mortgage rates had moved to the 4s, opening refinance opportunities nationwide. Unfortunately, many homeowners -- including those in Los Angeles, California; Miami, Florida; and Phoenix, Arizona -- found themselves unable to refinance. As home values cratered late last decade, many homeowners had too little equity to refinance.
That's when the Home Affordable Refinance Program was first proposed.
Via 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 for lower mortgage rates.
The most popular headline regarding HARP read "Obama Waives Refi Requirements". The program was an instant hit.
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 holding them responsible for whatever due diligence errors a 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 remove the risk of another bank's "bad underwrite", then, most lenders chose to restrict 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, suppressing total loan volume.
A second reason HARP was falling short was because the program restricted HARP loans to homes with an LTV of 125% LTV or less.
The LTV restriction prevented homeowners in hard-hit states such as Nevada and Florida from using HARP because many had negative-equity positions greater which exceeded 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 :
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, close to 3.26 million HARP loans have closed in total.
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.
Ultra-high LTV loans represented 25% of all HARP 2 loans in the updated program's first year. Today, though, loans over 125 LTV account for less than 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.
The U.S. housing market has been strong since 2011 and rising home values have diminished the need for the high-LTV HARP loan. This trend should continue, too, as home values continue to make gains nationwide.
The HARP program expires December 31, 2015. There are no plans to extend it.
HARP mortgage rates are near 21-month lows and the program remains on a tight timeline -- HARP expires at the end of 2015. If you have an existing mortgage above current market rates, you may be among of the hundreds of thousands of U.S. homeowners currently HARP-eligible.
The typical HARP homeowner now saves 35% or more on a refinance. Get a complimentary mortgage rate quote today. Rates are available online with no social security number required to get started, and with no obligation to proceed.
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.
The Mortgage Reports is invaluable. It's our primary source for information on housing finance.
Elizabeth C. Librarian
Thanks to The Mortgage Reports, I have a new, very low rate for my home. I owe you so much.
Amit D. Research Scientist
The Mortgage Reports gave me valuable information, tips, and advice which helped me to acquire a home with the lowest mortgage interest rate. Keep up the good work!
2015 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.