HARP 2.0: Expanded ReFi Plan Spurs Buzz, Questions

So-called HARP 2.0, the Obama Administration’s revamped Home Affordable Refinance Program, is yielding plenty of buzz as the Mortgage Bankers Association claimed that nearly a third of refinancing applications earlier this month was affiliated with the program.
But plenty of questions linger about the enhancement of a three-year-old program which most agree failed to reach sufficient “underwater” borrowers in need of assistance.
Under the original HARP, lenders completed more than 1.1 million refinances on mortgages owned or guaranteed by Freddie Mac or Fannie Mae.
But only 110,315 were for borrowers with loan-to-value (LTV) ratios above 105 percent.
The focus of the expanded HARP 2.0 is homeowners current on their payments, but who owe much more on their mortgages than their homes are worth.
The new HARP eliminates the LTV ceiling, reduces certain risk-based guarantee fees (also referred to as loan level pricing adjustments, or LLPAs), and extends the program’s end date to December 2013.
An estimated 4 million borrowers would potentially qualify for HARP 2.0, but lender participation, which is voluntary, is questionable, especially considering the high LTVs of candidates for the program.
Even the independent regulator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) concedes that point in a HARP 2.0 question and answer paper.
“For many reasons it is very difficult to project the number of mortgages that may be refinanced under the enhancements to HARP, including the future path of interest rates, borrower willingness to undertake a refinance transaction and the number of lenders and servicers who choose to offer the program.,” the FHFA states.
Given current historically low interest rates, the FHFA’s best estimate is that by the end of 2013 “HARP refinances may roughly double or more from their current amount” of 1.1 million refinances, the FHFA said.
But “such forward-looking projections are inherently uncertain” the regulator adds.
HARP 2.0 was announced late last year, but become operational last month after federal loan processing systems were updated to accommodate the reboot of the program.
U.S. Housing Secretary Shaun Donovan has said in recent testimony before Congress that HARP 2.0 minimizes risk for lenders, which would already be dealing with borrowers who are current on their payments.
“By ensuring that the (Fannie Mae and Freddie Mac) do not require the HARP originator to take responsibility for the quality of the loan that is being refinanced, it will expand the universe of responsible borrowers to whom they offer the refinancing option,” Donovan said.
In general, borrowers must meet the following criteria to qualify of the enhanced “HARP 2.0”:

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
  • The current loan-to-value (LTV) ratio must be greater than 80 percent.
  • The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.

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