MBA calls for HARP extension until 2012by Tim Manni
Back in early 2010 when the home affordable refinance program (HARP) was extended until June 30, 2011 (Making Home Affordable.com actually lists HARP’s expiration date as June 10, 2011), I challenged the logic behind that decision:
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 same forces that prevented more HARP refis a year ago still persist to this day. Despite increasing the loan-to-value (LTV) ratio to 125 percent in 2009, we’re still hearing that the majority of lenders won’t refinance a loan that has an LTV higher than 105 percent. Not to mention that the current trend of rising mortgage rates have all but squashed refi activity.
Despite all of this negativity surrounding HARP, the Mortgage Bankers Association (MBA) recently called upon HARP’s overseer to extend the program until December 2012, when HARP’s sister program, HAMP, is set to expire.
Do I endorse the extension?
Right out of the gate you all are probably thinking that I’m 100 percent against this extension…But I don’t know if I am.
You see, one of the persisting thorns that has been in the side of the housing market for some time now, and still is, is the number of underwater borrowers who can’t refinance to current mortgage rates. Why? If the majority of lenders are only refinancing loans that are 5 percent underwater, it stands to reason that there’s an exceptional amount of borrowers out there who are far more underwater than just by 5 percent (it’s the whole reason HARP rules were changed to include borrowers with 125 percent LTVs in the first place).
Here at HSH.com, we believed that the “underwater but can’t refinance” problem was and is so great that we even devised our own plan of how Washington could help these homeowners.
Beyond just extending the expiration, the MBA also proposed a few changes, or enhancements, to the refi program as well:
In the letter, MBA President and CEO John Courson also calls for changes to improve the effectiveness of the program. According to Courson, the three changes that would have the most dramatic impact on the program are an increase in the loan-to-value (LTV) limit, a re-evaluation of Fannie Mae and Freddie Mac’s Loan Level Price Adjustment (LLPAs), and closer alignment between Freddie Mac and Fannie Mae’s separate HARP programs.
Will the extension go through?
While I can’t say for sure if any of Mr. Courson’s other suggestions will be drafted into the refinance program, I can see the extension being pushed through.
You may be especially confused about my support (if you want to call it that) for a HARP extension, especially when I, in a roundabout way, endorsed the end of HAMP just last week. However, these programs are quite different, from the audience they are designed to reach, to what they cost taxpayers. The thing about HAMP is that it’s a really expensive program to keep afloat, and keeping that pricey program up and running is a hard sell if permanent modifications aren’t taking hold. Plenty of borrowers are entering HAMP, it’s just keeping them in the program is where the problem lies.
HARP seems to be struggling for different reasons. Even though I think HARP needs greater levels of participation, it’s going to be hard if mortgage rates keep rising and lenders don’t adopt higher LTVs.
Readers: Do you support HARP being extended until December 2012?