Recent changes to a special GSE refinancing program have been in effect for just six weeks, but lenders are already concerned that Home Affordable Refinance Program (HARP) 2.0 will fall short of its goal of helping one million homeowners saddled with high LTV loans.
Some are concerned that key lenders — including certain megabanks — have been slow to implement changes to the HARP.
Others are concerned that HARP 2.0 changes — which became operative Dec. 1 — did not go far enough.
Federal Reserve officials are recommending additional changes to reduce refinancing fees and “put-back” risk on the loans. Meanwhile, California Democrats in Congress are calling on President Obama to replace Federal Housing Finance Agency (FHFA) acting director Edward DeMarco with a new GSE regulator who would implement a far-reaching refinancing program.
“Installing a permanent director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy,” according to a letter signed by 28 members of the California congressional delegation.
Such an action is unlikely, since the president has not nominated anyone yet to replace the current acting director.
The FHFA originally rolled out the HARP program in the spring of 2009 to make it easier for homeowners with loan-to-value ratios above 80% (and up to 125%) to refinance their Fannie Mae and Freddie Mac loans.
As of Oct. 1, lenders had refinanced nearly one million borrowers under the HARP program, but only 83,000 of those refis involve loans with LTVs greater than 105%.
In early November, DeMarco rolled out the HARP 2.0 tweaks, reducing refinancing fees, limiting the put-back risk, and making other changes to facilitate refinancings.
Still, Federal Reserve officials worry that these new changes will have limited effect. The Fed has been purchasing Fannie and Freddie MBS to keep mortgage rates at historically low levels. And Fed officials, such as the president of the New York Federal Reserve Bank seem frustrated that it hasn't sparked a large wave of refinancings.
“I would like to see refinancings more broadly available on streamlined terms and with moderate fees to all prime conforming borrowers who are current on their payments,” said New York Fed president William Dudley. “This could substantially increase the number of refinancings.”
Edward Mills, a policy analyst at FBR Capital Markets, noted that the HARP 2.0 is getting off to a slow start as lenders set up their systems. In addition, funders are facing capacity constraints due to the ongoing mini-refinancing boom.
Mills expects HARP 2.0 refis will provide support for that mini-refinancing boom throughout the year. FRB analysts estimate there are 6.1 million GSE borrowers with LTVs north of 80% who are not delinquent — and 4.7 million of those have LTVs under 125%.
If lenders convince 20% of those 6.1 million homeowners to refinance, HARP 2.0 would reach 1.2 million borrowers. However, there are doubts lenders will refinance many borrowers with LTVs above 125%. That would narrower the number of HARP 2.0 refinancings to 938,700 units.
“I still have hopes that HARP 2.0 will take off,” Mills said, “and I think there is the political pressure there for it to work.”
If it becomes apparent that HARP will fall short, he expects changes will be made to the program to reach the one million mark.
In crafting the HARP 2.0 changes, FHFA ruled that borrowers who already refinance under the first HARP program would not get another shot.
The GSE regulator made that cut so investors in MBS backed by HARP loans would not get burned by prepayments, and shy away from purchasing newly issued HARP 2.0 MBS.
At the same time, the FHFA also excluded GSE loans originated after May 2009 from HARP 2.0 refinancings. Due to falling home prices, some borrowers who purchased homes in 2009 and 2010 have lost equity.
Mills said there are four million GSE borrowers with above-market mortgage rates that are not eligible under the HARP 2.0 program. Within that four million subgroup, some could be delinquent or ineligible for other reasons.