The Federal Housing Finance Agency (FHFA), along with Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs), has announced a series of changes to the Home Affordable Refinance Program (HARP) in an effort to attract more eligible borrowers who can benefit from refinancing their mortgage. Dubbed HARP Phase II, the program enhancements were developed at the direction of the FHFA, with input from lenders, mortgage insurers and other industry participants.
“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said FHFA Acting Director Edward J. DeMarco. “Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the GSEs. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”
Mark Zandi, chief economist at Moody’s Analytics, has estimated that the new plan could help an additional 1.6 million homeowners refinance by the end of 2013. By refinancing at today’s low rates, the average homeowner–with a $150,000 loan–could save approximately $1,600 a year according to Zandi.
"The mortgage industry welcomes these changes designed to help more underwater borrowers who are current on their mortgages refinance at today's historically low interest rates," said David H. Stevens, president and chief executive officer of the Mortgage Bankers Association (MBA). "Not only will these changes allow more borrowers to qualify, but they will streamline the process and reduce the cost to borrowers and should lessen risk for Fannie Mae and Freddie Mac. Lenders are particularly gratified that the refinements will provide relief from some representations and warranties that lenders face when originating new loans. These changes alone should encourage lenders to more actively participate in HARP."
To date, Fannie Mae and Freddie Mac have helped approximately nine million families refinance into a lower cost or more sustainable mortgage product, approximately 10 percent of those via HARP. The HARP program will continue to be available to borrowers with loans sold to the GSEs on or before May 31, 2009 with current loan-to-value (LTV) ratios above 80 percent.
“These enhancements will not only help responsible homeowners who have been unable to refinance because the equity in their home has disappeared, but it will also help spur the economy by allowing homeowners to reduce their monthly payment, thus allowing homeowners to spend the extra savings on much-need household expenses to spur the economy,” said NAMB President Michael D’Alonzo. “NAMB applauds the Obama Administration and the FHFA for realizing this program had limited success to the consumer and making the necessary changes so that the average American homeowner who pays their mortgage on time but is underwater can benefit.”
Enhancements to HARP Phase II address several other key aspects of HARP including:
►Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
►Removing the current 125 percent LTV ceiling for fixed-rate mortgages (FRMs) backed by the GSEs;
►Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by the GSEs;
►Eliminating the need for a new property appraisal where there is a reliable automated valuation model (AVM) estimate provided by the GSEs; and
►Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the GSEs on or before May 31, 2009.
HARP Phase II includes key elements proposed by U.S. Sens. Barbara Boxer (D-CA) and Johnny Isakson (R-GA) in their bipartisan Helping Responsible Homeowners Act.
“This is a positive step in the right direction for the preservation of homeownership for those Americans who have been making their payments and met their obligations," said Sen. Isakson. "They deserve the benefit of today’s lower interest rates.”
A coalition of bipartisan U.S. Senators, led by Sens. Boxer, Sen. Isakson and Sen. Robert Menendez (D-NJ), recently joined 13 of their colleagues in urging the Obama Administration to quickly implement administrative reforms to help millions of responsible homeowners refinance and take advantage of today’s record low interest rates.
“I am very pleased that the administration is taking these steps to help responsible homeowners refinance at historically low interest rates," said Sen. Boxer. "Allowing these homeowners to refinance at today’s record low rates will keep families in their homes and boost the economy by putting thousands of dollars back in the pockets of borrowers. I urge FHFA to move swiftly to assure that these new policies will help as many homeowners as possible.”
The GSEs plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by Tuesday, Nov. 15. Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.
"We still have an enormous amount of work to do to repair housing," said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. "The HARP changes are a good step, but our leaders in Washington need to quickly focus on a broader range of actions for improving the housing marketplace. It has taken a painfully long time for them to recognize that housing is indispensable to the job creation and growth that have been sorely lacking since the end of the recession. The American people are losing patience and they expect far better economic prospects than those they are finding today, which stem in large part from neglecting housing."