HARP Surpasses 2012 Estimates on Homeowner Refinances

By Kathleen M. Howley

Homeowners with underwater mortgages in U.S. states worst-hit by foreclosures are leading refinancings after the government expanded programs to aid borrowers, strengthening the weakest link in the housing recovery.

HARP, which has been used by almost 2.2 million borrowers whose loans are backed by Fannie Mae and Freddie Mac since the program started in 2009, originally banned borrowers whose mortgages were more than 25 percent underwater. The new version enacted last year, known as HARP 2.0, removed the restriction. It also lets borrowers refinance through any lender, instead of being restricted to using their existing servicer, and gives lenders more protections from so-called buyback demands by investors, who say the quality of a loan was misrepresented. A quarter of the loans refinanced through HARP in December were more than 25 percent underwater, the report said.

“HARP 2.0 is working,” said Patrick Ahn, a mortgage bond trader at Los Angeles-based TCW Group Inc. “We’ve seen many more borrowers take advantage versus the first version.”

As home prices have risen, the percentage of borrowers that are underwater on their homes has dropped to fewer than 15 percent from more than 25 percent in 2011, JPMorgan Chase & Co. analysts wrote in a report last week.

That’s allowing more homeowners to take advantage of borrowing costs that have been pushed down by the Fed. The average 30-year mortgage rate was 3.5 percent last week, compared with the all-time low of 3.3 percent in November, according to data from McLean, Virginia-based Freddie Mac. This year, the rate probably will average 3.8 percent, compared with 3.7 percent in 2012, according to Fannie Mae in Washington.

Mortgage lending this year likely will fall 21 percent to $1.5 trillion, Fannie Mae said. Refinancing will account for 58 percent of that, the mortgage financier said. In the current quarter, lending will fall to $451 billion from $574 billion at the end of the year.

HARP has been the government’s most successful housing program, exceeding the 1 million loans modified under the Home Affordable Modification Program, or HAMP, and the 114,417 homes in Home Affordable Foreclosure Alternative, or HAFA, that have been short sales, where lenders agree to let homes sell for less than the mortgages against them.

“Clearly there was pent up demand from people who didn’t have options” before the program was modified last year, said Meg Burns, senior associate director for housing and regulatory policy at the FHFA in Washington.