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Increase in HARP Mortgage Refinance and Modifications

Written By:
October 09, 2012 at 1:15 AM

Fannie Mae Bank Owned Short Sale

Since early 2009, the Obama Administration has introduced a number of programs in response to the housing crisis that resulted in over 4 million foreclosures. The programs receiving the most press have been the Home Affordable Modification, introduced in February 2009 and HAMP and later, the Home Affordable Refinance Program (HARP).

When originally announced in early 2009, officials stated that HAMP would help 3 to 4 million financially-troubled homeowners by modifying their home mortgages and helping them to avoid default.

To qualify for these programs, a borrower must have a mortgages insured or owned by one the government-sponsored enterprises (GSEs) -- Fannie Mae or Freddie Mac. Recently, the Federal Housing Finance Agency (FHFA), the federal agency that functions as the conservator for the GSEs, released its quarterly Foreclosure Prevention Report.

The document examines the agency’s foreclosure prevention actions.

HAMP Helping More Homeowners

FHFA data shows 129,000 homeowners received foreclosure prevention assistance during the second quarter of 2012. HAMP has helped 2 million borrowers avoid foreclosure since September 2008.

The FHFA foreclosure report also reveals the following information:

  • Nearly 1.2 million homeowners received mortgage modifications.
  • More than 50% of homeowners who received mortgage modifications during Q2 2012 had their mortgage payments reduced by 30 percent or more.
  • Principal forbearance made up about 29 percent of modifications completed during Q2.

The performance of modified mortgages also improved. The rate of homeowners who received mortgage modifications in Q3, and subsequently fell behind one or two mortgage payments within nine months or more after modification, registered less than 15 percent.

HARP Measurements Show Improvement

HARP has the mission of helping homeowners with underwater mortgages. These homeowners outstanding mortgage balances that exceed the market value of their residences. The HARP mortgage program allows qualified borrowers to pay off high-interest rate mortgages and refinance into low-interest home loans.

The initial HARP mortgage program had a number in built-in obstacles, which hindered the program’s success. The major impediment concerned the 125 percent loan-to-value ratio limit pl. Considering that the average home value declined 34 percent across the nation (Case-Shiller Home Price Index), the 125% LTV cap prevented many homeowners from qualifying for a mortgage refinance.

After a few minor tweaks to HARP along the way, the FHFA finally eliminated the 125 percent LTV requirement in October 2011. In addition, it got rid of some other conditions and eliminated or reduced refinancing fees. The FHFA also extended the deadline for the program by a year to December 31, 2013.

The latest data show that revisions to HARP and record-low interest rates have increased the number of mortgage refinancing under the program. The nation’s largest mortgage servicer Lenders Processing Services (LPS) says the number of loan prepayments in August reached a seven-year high. Furthermore, homeowners with underwater mortgages prepaid their loans at a higher rate, which coincides with the overall increase in mortgage refinancing.

LPS figures demonstrate that the number of homeowners with loan-to-value ratio of 120 percent or more experienced a 65 percent increase in mortgage prepayments. In January 2012, 11.66 percent of these homeowners prepaid their home loans compared to 19.27 percent in August.

Volume of Mortgage Refinancing Up

The Mortgage Bankers’ Association weekly mortgage survey for the week ending September 28 supports the FHFA contention of an increase in mortgage refinancing applications. The volume of completed mortgage refinances reached a three-year high.

The number of homeowners receiving initial notices of foreclosures and foreclosure sales transactions fell during Q2. In addition, the inventory of bank-owned properties declined for the seventh straight month. Banks are selling REO properties at a faster pace than they are receiving through the foreclosure process.





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