Update1: HARP Receives One Year Extension — What’s the Point?
by Tim Manni
Update1: While many industry insiders have debated the success of the home affordable refinance program (HARP) — in fact, analysts at Barclays Capital referred to the program as a “failure” last week — one thing’s for sure, HARP will be extended another year. The expiration date is now slated for June 30, 2011.
According to the National Association of Realtors, “Since HARP began last April, it has refinanced 190,180 mortgages.” That’s a far cry from helping the 4-5 million homeowners that the program originally promised.
HARP was designed to cater to underwater homeowners who couldn’t qualify for private-market refinances due to their minimal or negative equity position.
With such little success, why extend the program any longer?
“[Federal Housing Finance Agency] FHFA has reviewed the current market situation and the state of mortgage insurance availability and has determined that the market conditions that necessitated the actions taken last year have not materially changed,” said DeMarco. “Accordingly, to support and promote market stability, and to encourage lenders and other mortgage market participants to fully adopt the HARP program, including the implementation of the October 2009 expansion of loan-to-value ratios (LTVs) to 125 percent, FHFA is authorizing the extension of HARP until June 30, 2011.”
Beyond unchanged market conditions, beyond the fact that swaths of underwater borrowers still exist, there are several fundamental reasons why borrowers aren’t refinancing and can’t refinance at the pace Washington had hoped.
Our friend Nick Timiraos at the Wall Street Journal explains that there are simple and fundamental roadblocks that are preventing more refinances (emphasis added):
Falling home prices have left many owners with little or no equity, making it harder to qualify for refinancing. Moreover, stricter lending standards and higher fees by banks and mortgage giants Fannie Mae and Freddie Mac and declining incomes have made it tougher and less attractive for borrowers to seek new loans.
In addition to these, small loan balances and job losses (a two-income home become a one-income home) are also reasons people don’t refinance. Separately, on the surface it’s perplexing why more borrowers haven’t refinanced to historically-low mortgage rates, given the potential for substantial savings. History proves that rock-bottom rates are the main force behind past refi booms:
One indicator of the economic impact of refinancing: Loans that refinanced in 2009 will result in $3.4 billion in savings for consumers this year, according to a report by First American CoreLogic, a research firm based in Santa Ana, Calif. That will return an additional $17.2 billion in savings to borrowers over the next five years.
The last time mortgage rates were at current levels, in 2003, refinancing activity hit $2.9 trillion, according to trade publication Inside Mortgage Finance. Last year, refinance volume reached $1.2 trillion, the highest amount since 2003 but not nearly as much as expected, considering how low interest rates have fallen.
The reason behind the lack of refinancing seems to be the “perfect storm” of borrowers being denied refinances, and borrowers flat-out deciding against refinancing. Given the fact that this “perfect storm” is counteracting HARP’s success, was it worth keeping it around for another year?
If low rates are no longer the catalyst behind refis, and outside forces such as strict lending conditions and higher fees are preventing new refis, does HARP even have a purpose?
The original portion of this post was published on 03/02/10.
