We’ve been anticipating the nomination of Mel Watt to lead the Federal Housing Finance Administration (FHFA) for quite some time. The FHFA controls Fannie Mae and Freddie Mac and dictates what can and cannot be done under their mortgage assistance programs, including the Home Affordable Refinance Program (HARP) – aimed to help underwater homeowners refinance their mortgage. Watt has been known to be much more consumer-friendly than his predecessor Ed DeMarco and this may just open up the doors for the long-awaited HARP 3.
Mortgage rates increased this week as the Federal Reserve announced that it will begin tapering their bond-buying program (known as quantitative easing or QE) in early 2014. The Fed’s initially began this program in September 2012 in efforts to maintain long-term borrowing rates. QE is a stimulus program through which the Fed’s purchase $40 billion a month in mortgage-backed securities, and $45 billion a month in U.S. Treasury bonds. Coming in May, the Feds will reduce this initiative by $10 billion a month.
In today’s volatile market, low rates are attractive for any prospective homebuyer or borrower seeking a refinance. Mortgage rates seemed to have improved for all loans types last week; including FHA, conventional, VA, Rural housing loans, etc.
This week may also shine some light on the long-awaited HARP 3 program. HARP was first launched in 2009 to aid millions of homeowners who lost significant equity following the housing collapse. Borrowers were stuck with high interest rates and subprime interest-only mortgages that adjusted well-beyond a borrower’s financial means.
At the time, home values were plummeting and mortgage rates followed. To encourage refinance activity and jumpstart consumer spending, HARP was established. This allowed borrowers with less than 80% loan-to-value (LTV) to avoid expensive private mortgage insurance premiums in exchange for a lower interest rate or fixed payment schedule.
We’ve been anticipating another update for the HARP initiative for over a year now as millions of borrowers are still stuck with high interest rates (many over 6%), and don’t have enough equity to secure a traditional refinance. As of now it’s impossible to predict how HARP 3 will differ from its predecessor (HARP 2), but speculation shows that several updates may include:
Underwater Refinance for Non-GSE Backed Loans
Following the housing collapse, Fannie Mae, Freddie Mac and the FHA control nearly 90% of all new mortgage originations. This has not always been the case, prior to 2008 many non-government lenders controlled a large share of mortgage activity and “Alt-A” loans were among the most common loans offered. These “alternative document” loans are a very risky investment and required little documentation from the borrower upon approval. ALT-A loans included stated income/asset loans, low doc and no doc loans.
Despite high risk and default rates among this group of borrowers, there are millions of homeowners with Alt-A loans (and even subprime borrowers) who’ve managed to remain current (performing) and have been unable to take advantage of programs such as HARP.
HARP 3 seeks to expand the program to all borrowers, not just those with loans backed by America’s mortgage giants.
Allow Multiple HARP Refis
Interest rates were in the 6% range for most of the 2000s. Some homeowners were successfully able to lower their rate under HARP when the program was established back in 2009 – at this time rates were about 5%. In 2012 and early 2013, mortgage rates reached all-time lows.
Should HARP 3 pass, the program may implement a new feature that will allow a second refinance under HARP after just six successful monthly payments have been made. Until then, HARP only allows one refinance.
Eliminate Origination Date Requirement
Another update could be the program’s origination date requirement, which currently requires the mortgage to be originated (securitized by Fannie or Freddie) on, or prior to, May 31, 2009. There are many homeowners who purchased after 2009 and are unable to take advantage of today’s low rates due to this requirement. HARP 3 seeks to eliminate this cut-off date and expand the program to homeowners who purchased in recent years.
To date, it’s impossible to tell whether or not the Responsible Homeowner Refinancing Act of 2013 will pass, but it’s definitely not being overlooked and the White House continues to mention the update under the #MyRefi brand. Millions of homeowners will be able to take advantage of today’s low rates due to the passage of the program. We have realized the positive impact of HARP 2, HARP 3 will only expand opportunities further.