HARP 2.0 Could Help More Than 1.6 Million Underwater Homeowners Refinance Their Mortgages

Filed in HARP Program Updates by on February 29, 2012 0 Comments

January 4, 2012

HARP 2.0 Could Help as More than 1.6 Million Underwater Homeowners Refinance Their Mortgages:

Frank Nothaft, Chief Economist for Freddie Mac recently said that the new version of the Home Affordable Refinance Program (HARP 2.0) could potentially help more than 1.6 million homeowners to refinance their homes at today’s mortgage rates. Rates have hit new record lows recently, but many homeowners are precluded from refinancing due to their home being underwater. The new version of HARP could help change that. Nothaft commented in Freddie Mac’s November 2011 Economic Outlook:

“HARP is available for certain borrowers with current loan-to-value ratios above 80 percent and whose loan is owned by Freddie Mac or Fannie Mae. From inception (April 2009) through September 2011, more than 900,000 borrowers have obtained a refinance loan through HARP. In addition to an extension of HARP through the end of 2013, the recent announcement included the following enhancements: waiving certain loan seller/servicer reps and warranties for eligible borrowers, reduction or elimination of some fees that had been previously assessed, removal of the maximum current loan-to-value limit, and eliminating the need for a new property appraisal in some cases. Estimates of the number of additional HARP refinances vary, with the Federal Housing Finance Agency stating that “HARP refinances may roughly double or more from their current amount”, Keefe Bruyette & Woods’ analysts estimating about “1 million incremental loans”, and Moody’s Analytics projecting as much as 1.6 million additional loans above what would have occurred under the original HARP terms, bringing the total number of HARP refinances to as much as 2.85 million loans by the end of 2013.”

In addition to helping a million or more homeowners refinance their mortgages , HARP 2.0 could be a boon to the mortgage industry. Mortgage originations could increase by $200-300 billion in 2012-2013. On average, a homeowner refinancing the HARP mortgage program could save more than $2,000 in interest payments on their mortgage in the first year after refinancing.

Another notable change is that Fannie Mae has made some big changes to their underwriting guidelines that could encourage more lenders to get on board with the program. Fannie eliminated an underwriting guideline that used to require the lender to determine if the borrower has a “reasonable ability to repay” their loan. This determination was based upon credit score, debt-to-income ratio (DTI), and a variety of other factors. The elimination of this requirement may allow lenders to streamline the process, underwriting loans on the basis of credit score and whether or not the borrower is current on their mortgage.

Many lenders are still in the process of updating their underwriting guidelines for HARP 2.0. We expect that the program will be widely adopted sometime in the first quarter of 2012.

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