The Federal Housing Finance Agency (FHFA) recently announced that the Home Affordable Refinance Program (HARP) will be extended through September 2017.
If the FHFA’s goal is to help as many homeowners as possible refinance to record-low mortgage rates, extending the program’s deadline is not the best way to achieve that goal.
At this point in the program’s tenure, extending the loan-qualifying date past May 31, 2009 would be a better way to expand the pool of available and willing participants.
The HARP pool is drying up
The number of borrowers refinancing through HARP continues to decline. Even Mel Watt, director of the FHFA, acknowledged this fact in a speech he made on May 8, saying that the majority of eligible borrowers had already taken advantage of the program.
As of December 2014 (the latest available data from HARP.gov), 604,678 Americans across the U.S., Puerto Rico, the Virgin Islands and Guam can still qualify for HARP, 31,092 in California alone. If this multitude of borrowers hasn’t pulled the trigger in six years time, what difference will another year make, especially with the resounding expectations that mortgage rates will rise later in 2015?
Perhaps we will see a few more refinances, maybe, but not a meaningful increase in participation.
“Should I refinance?” HSH.com’s refinance calculator can help answer that question
Expand the cutoff date
To currently qualify for HARP, borrowers must have a mortgage that has been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. The FHFA should expand that cutoff date past May 2009 and into 2011 to allow more Americans to participate. The mortgage-rate data certainly supports the notion that there is a substantial pool of borrowers from 2009 to 2011 who could refinance to a much lower mortgage rate:
From May 1, 2009 until May 1, 2010, the conforming 30-year fixed mortgage rate ranged from 4.92 percent to 5.74 percent. Between May 2010 and May 2011, the 30-year fixed mortgage rate ranged from 4.32 percent to 5.13 percent. Mortgage rates during the week ending May 8, 2015 were 3.93 percent.
Why ‘eligible’ borrowers aren’t refinancing
There are several reasons why the remaining contingent isn't refinancing through HARP, and probably won't refinance through HARP in the year to come:
- Poor credit: Getting the attention of any mortgage lender is hard enough when you have a low credit score, let alone a HARP-participating lender (remembering that HARP is a voluntary program). Furthermore, you need to be in the highest credit strata in order to qualify for the lowest available mortgage rates.
- Product choice: Let’s say in 2008 or early 2009 you took out a 5/1 ARM. If that’s the case, you’re doing quite well for yourself these days and likely have very little interest in refinancing to a higher mortgage rate. In October 2008, 5/1 ARMs averaged 6.33 percent. Your first rate reset in 2013 would be somewhere in the area of 2.42 percent. If you got a 5/1 ARM in early 2009 and your first reset was in 2014, you would see a rate in the area of 2.40 percent. In the 2013, 2014 low-rate era of Fed policy, who would refinance a lower rate for a higher rate?
- Loan amount: Lastly, you must consider that at least a portion of the HARP-eligible borrowers have a small loan amount and do not want to refinance to a new 30-year term.
The FHFA could potentially realize a lot more success under HARP if they expanded the cutoff date past May 31, 2009 and into 2011.
(Image: Nigel Carse/iStock)
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