Another 85,000 Home Affordable Refinance Program (HARP) mortgages closed in May, putting the 4-year-old program on pace to close more than 1 million loans this year for the second straight year.
However, the program for “underwater homeowners” is now less-so. As U.S. home values rise, the need for HARP at ultra-high LTVs is dwindling. It’s a shift which could hasten the launch of HARP 3.0.
HARP For U.S. Homeowners
The Home Affordable Refinance Program was first launched in early-2009 as part of that year’s economic stimulus. It was among the new president’s first acts to help struggling U.S. homeowners. For this reason, the program is sometimes called “The Obama Refi”.
HARP is currently in its second iteration. The program’s initial iteration was revamped in late-2011 when it became clear that the pace of HARP closing was too sow to meet the administration’s goals for the program.
HARP was created to help 7 million U.S. households. Through its first three years, it had reached fewer than 1 million.
The HARP re-launch was dubbed HARP 2.0 and its differences from the original HARP were basic, but important.
First, HARP 2.0 removed a provision which had previously limited HARP loans to 125% loan-to-value. In the HARP 2.0 guidelines, homeowners were given the ability to refinance no matter how much they owed on their homes relative to its value. Severely underwater homeowners — homeowners who had been shut out from HARP 1.0 — were suddenly HARP-eligible.
The second Home Affordable Refinance Program change unlocked U.S. homeowners from having to refinance with a specific mortgage lender. This, too, increased the number of HARP-eligible homeowners nationwide.
Today, you can do HARP with any U.S. lender.
HARP No Longer For “Underwater Homeowners” Only
HARP loan volume has soared since HARP 2.0 launched. In the first three years of HARP, fewer than 1 million closings occurred. Within the first 12 months of HARP 2, that figure was already matched.
2.65 million HARP loans have closed to-date — 38% of the government’s initial target.
However, in looking at data from successful HARP closings, a loan-to-value pattern emerges which suggests that HARP 2.0 may be losing its target audience. But unlike HARP 1.0 which succumbed to overly-stringent underwriting, HARP 2 is losing to the housing market.
As home values rise, HARP 2.0 may be less necessary.
There are now fewer U.S. households using the ultra-high LTV component of HARP than during any month since the Home Affordable Refinance Program was revised.
The slowdown has been sharp :
- January 2013 : 24.90 percent of HARP closings had LTV over 125%
- March 2013 : 21.80 percent of HARP closings had LTV over 125%
- May 2013 : 18.58 percent of HARP closings had LTV over 125%
By contrast, the percentage of HARP loans with 80-105 LTV are higher by 7 percentage points over the same period of time. The Home Affordable Refinance Program is no longer just the mortgage for “underwater homeowners”.
HARP is now for everyone.
When Will HARP 2.0 Give Way To HARP 3.0?
Rising home values have cut into HARP’s appeal. Ultra-high LTV loans were required last year as the housing market began its recovery. This year, however, the market looks different.
Homeowners in areas such as Las Vegas, Nevada; Orange County, California; and Phoenix, Arizona have seen home prices rebound sharply and, in many cases, loan-to-values have retreated from “severely underwater” to something less severe.
The demand for loans over 125% is less strong in 2013. It’s a shift which may lead to a third HARP version which markets have already titled HARP 3.0.
The details of HARP 3.0 remain muddied. It’s unclear what changes the program will incorporate. However, several story lines have emerged in Congress regarding the program’s likely approval.
Among the potential HARP changes :
- Changing the program’s eligibility from May 31, 2009 to a date more current
- Allowing non-Fannie Mae and non-Freddie Mac mortgages to use HARP
- Changing HARP’s “one-time use” policy to allow the refinance of a HARP loan
HARP 3.0 may pass as soon as this September 2013, or it may not pass at all. Currently, the program is slated to end December 31, 2015.