On “October 24, 2011, the government’s FHFA announced its revamped HARP refinance program.
HARP is “the mortgage for underwater homeowners”; an appraisal-less refinance for loans backed by Fannie Mae or Freddie Mac. It’s the conforming mortgage equivalent of the FHA Streamline Refinance.
Since the FHFA announcement, this website has logged 1,727 HARP Refinance requests via Rate Quote Widget. The queries reveal much about the HARP program and the U.S. homeowners that want to use it for a refinance.
Underwater Homeowners Aware Of Key HARP Dates
When the new HARP refinance program was released October 24, 2011, homeowners jumped on the story.
HARP refinance queries climbed immediately, reflecting the pent-up demand for an “underwater mortgage program”. HARP queries reached an apex the following morning as news of the program appeared in local newspapers. Over the next 2 weeks, HARP refinance queries were fewer, but consistent.
Then, on November 14, they surged again. This is because the initial FHFA HARP statement said Fannie Mae and Freddie Mac would communicate “operational details” to mortgage lenders and servicers by November 15, details which included pricing structures and product restrictions
HARP refinance inquiries remained elevated for a 4-day period before settling back again.
The FHFA’s second milestone date was December 1, 2011, the day on which lenders start taking HARP II refinance applications. HARP queries are expected to surge through the first days of December, too.
Homeowners Will Benefit From “Unlimited Loan-To-Values”
The government’s first pass at the HARP program allowed for refinancing an underwater mortgage, but the loan-to-value ratios were limited to 125%.
The new HARP program, by contrast, is without loan-to-value restrictions (in most cases). If you are refinancing to a fixed-rate mortgage, your home’s loan-to-value can be 400% or higher. This helps homeowners with condos in Florida, for example
By contrast, for HARP refinances to an adjustable-rate mortgage, LTVs are capped at 105%. This means that for every $105,000 borrowed, your home must have at least $100,000 in equity.
70 percent of HARP queries indicate a loan-to-value over 105%.
HARP Refinance Brings Relief To High-Rate Homeowners
The chief benefit of HARP is that it gives underwater homeowners the ability to refinance to today’s low rates.
For example, Freddie Mac reports today’s average 30-year fixed rate mortgage at 4.000 percent plus loan fees. 97.9% of HARP queries indicate a mortgage rate higher than 4.000, with the majority near 6.000 percent.
Meanwhile, to help HARP applicants get the lowest mortgage rates possible, in revamping HARP, Fannie Mae and Freddie Mac capped loan-level pricing adjustments for adjustable-rate and 30-year fixed rate HARP refinances at a miniscule 75 basis points. For 15-year and 20-year fixed rate loans, they eliminated LLPAs altogether.
As a result, many of today’s HARP applicants will actually get access to lower mortgage rates as compared to “traditional” refinance candidates.
Assuming a 200 basis point mortgage rate reduction (i.e. 2 percent off the rate), a HARP refinance applicant who carries a $200,000 mortgage will save $3,100 in mortgage payments annually, at minimum.
HARP Refinances Led By California, Florida, Arizona
Not surprisingly, the majority of HARP queries are sourced from states in which home values soared last decade.
Homeowners in California, Florida and Arizona account for 45% of all HARP Refinance queries. Other states with high HARP query figures include Michigan, Georgia and Illinois.
It’s also notable that the overwhelming majority of HARP queries have been for primary residences; there are very few queries for investment properties. From this data, we can infer that the HARP program will be a boon to the ordinary, everyday homeowner as compared to rental property managers.
HARP Homeowners Benefit Least In California; Most in Georgia
California’s homeowners have shown the greatest interest in the HARP Refinance program to-date, representing more than 20% of all HARP queries. However, the state’s residents — and residents of Nevada, too — should receive relatively small HARP benefit as compared to applicants of Eastern Seaboard states such as Pennsylvania, Virginia, South Carolina, and Florida.
This occurs because of “mortgage pricing” tends to vary by region.
On the West Coast, loan originators often charge 1 discount point with every mortgage, where 1 discount point is a loan fee equal to 1% of your loan size. When you pay points, you get access to lower mortgage rates than the “market rate”. By contrast, on the East Coast, Discount Points are rarely charged. This results in fewer closing costs for an applicant, but higher mortgage rates.
Therefore, as we look at the median interest rate for each state, it becomes clear why the HARP Refinance applicants from West Coast states have lower median mortgage rates than those from the East and Midwest — Discount Points.
HARP queries from Kansas and Iowa indicate the highest mortgage rates, on average.
Unlimited LTVs Help Homeowners In Nevada, Arizona
The most celebrated change in the new HARP Refinance program is its waiver of loan-to-value requirements on fixed-rate mortgages.
Under the new HARP guidelines, appraisals are unnecessary except in rare cases. It doesn’t matter if your home is underwater. This means that residents of Nevada — where self-reported LTVs top 155% — can breathe easy . So long as you meet the HARP program’s other mortgage guidelines, you’ll be approved regardless of your home equity.
The same is true in other high loan-to-value states including Arizona (136% LTV) , Florida (129% LTV) and Michigan (122%).
Even in states like Ohio and Tennessee, HARP’s provision for unlimited LTV is a plus. Local values have not plunged like elsewhere in the county, but values are down. With less equity, refinancing has been impractical for huge groups of homeowners.
With the new HARP Refinance program, refinancing to lower rates is now possible.
The HARP Refinances Is Economic Stimulus
When households can refinance, it’s good for the economy. There are 3 types of refinances, each yielding palpable economic benefit, both locally and nationally.
- A cash-out refinance helps a homeowner to pay down credit cards and/or buy “things” including appliances, education, and home improvement projects.
- A term-reduction loan helps a homeowner switch from a 30-year mortgage to 15-year mortgage, thereby cutting long-term interest costs by tens of thousands.
- A basic rate-and-term refinance lowers a homeowner’s monthly mortgage payments, creating the “pay raise” effect. Less paid is akin to more earned.
The HARP Refinance program was rebuilt with a nod to these three loan types. Not all households will meet the new HARP mortgage guidelines, but the majority will.”
TODAY’S NEWS WAS POWERED BY www.themortgagereports.com: Dan Green (NMLS #227607)