FHFA: HARP Participation Rates Continue To Disappoint

About 370,000 home refinances were processed during the first quarter, with about 77,000 processed through the Home Affordable Refinance Program (HARP), according to the Federal Housing Finance Agency's (FHFA) First Quarter 2014 Refinance Report.

It was the fourth straight quarter in which total refinances, including HARP refinances, declined, according to the agency. The decrease was mainly attributable to the increase in mortgage interest rates that came in March, the agency adds.

HARP participation rates have fallen far short of government expectations. When the program was first launched in 2009, the FHFA forecast that 4 million to 5 million borrowers would take advantage of it; however, problems with the program's design, combined with rising interest rates, resulted in lower participation than had been anticipated.

In response, the FHFA, along with government-sponsored enterprises Fannie Mae and Freddie Mac and other industry stakeholders, identified several issues that were deterring homeowners from using the program, including the fact that loans with loan-to-value (LTV) ratios greater than 125% were not eligible for HARP refinances and that the program's short duration (approximately 15 months) was discouraging lenders from participating.

After soliciting feedback from stakeholders, many of the problems with HARP were addressed, compromises were made, and in October 2011 a re-branded program, ‘HARP 2.0,’ was launched. Changes included removing the 125% LTV ceiling and extending the duration of the program to Dec. 31, 2015.

Following that last round of changes, participation increased. As of March, more than 3.1 million refinances had been processed through the program.

The FHFA, however, has identified about another 750,000 borrowers who could benefit from the program, but who have not yet refinanced. As a result, the agency recently launched a nationwide campaign to educate eligible homeowners to encourage greater participation. The campaign includes a new website, www.HARP.gov, and public service announcements that are airing in targeted markets.

In addition, the FHFA hired HGTV personality and Power Broker star Mike Aubrey to help raise awareness about the program.

Meanwhile, the Office of the Inspector General has identified additional barriers to HARP participation and a new round of modifications to the program has been proposed. However, the so-called ‘HARP 3.0‘ program is yet to be approved and codified. With the program due to sunset next year, it is unclear whether those additional changes will ever be made.

HARP volume represented roughly 21% of total refinance volume in the first quarter, according to this week's report from the FHFA. Of those, 23% were for underwater borrowers (those with LTV ratios greater than 105%).

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