HARP 2.0: ReFi Effort for Underwater Borrowers Surging

The Home Affordable Refinance Program (HARP) was initiated three years ago, but only this year has it gained steam as the primary vehicle for homeowners “underwater” on their mortgages to refinance and take advantage of historically low interest rates.
The program kicked into high gear in May for borrowers whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac. It now accounts for at least 20 percent of total refinance volume.
The new version of the program, dubbed HARP 2.0, removes legal liabilities for lenders and eliminates the 125 percent loan-to-value cap on mortgages.
Fannie and Freddie own more than 60 percent of U.S. mortgages, and HARP 2.0 was praised this week by the independent regulator over the two mortgage financing giants as “the most effective response” for homeowners in negative equity.
So much so that Edward J. DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, said HARP 2.0 is a better solution than mortgage principal forgiveness.
DeMarco made this clear in his statement this week, which effectively rebuffed President Obama’s efforts to initiate mortgage write-downs as part of the administration’s broader effort to stem the foreclosure crisis.
U.S. housing officials on Friday released their monthly update on the various campaigns to help distressed homeowners or those “underwater” on their mortgages who could face foreclosure.
“This month’s indicators show momentum not seen since before the housing crisis as refinances through our enhanced Home Affordable Refinance Program continue to surge,” said HUD (U.S. Housing and Urban Development) Acting Assistant Secretary Erika Poethig. “HARP loans represented 20 percent of total refinance volume in May, the largest increase since the program was launched in 2009.”
DeMarco said more than 1 million loans were refinanced under the original HARP through late 2011, but the Fannie/Freddie regulator recognized more needed to be done.
Slightly more than 110,000 affected underwater borrowers with LTV ratios above 105 percent were assisted via the original HARP.
Lenders now could see 2 million applications this year alone under HARP 2.0’s refocus on underwater borrowers who are current on their mortgages.
DeMarco said HARP 2.0 is designed to encourage refinancing into shorter mortgage terms, and the strategy seems to be working.
On average, 10 percent of borrowers with LTVs higher than 105 percent opted for shorter terms in 2011. However, 15 percent chose shorter from January 2012 to May 2012, and in May 2012 alone that portion grew to 19 percent.
“In short, HARP represents the most effective response to assisting the vast majority of underwater borrowers,” DeMarco said.

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