After months of speculation, the Federal Housing Finance Agency (FHFA) has announced a series of changes to the Home Affordable Refinance Program (HARP) for loans owned or guaranteed by the government-sponsored enterprises (GSEs). Among the key changes are the elimination of certain risk-based fees for consumers who refinance into shorter-term mortgages and the removal of the current 125% loan-to-value ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac.
Borrowers who refinance into mortgages with terms longer than 20 years will still have to pay loan-level price adjustments, though the fees will be reduced. If a borrower refis under HARP into an adjustable-rate mortgage, their LTV may not be above 105%.
In announcing HARP "Phase II," the FHFA stopped short of giving a firm projection as to the number of borrowers that will be helped. Instead, the conservator said its best estimate, given current market interest rates, is that HARP refinances may "roughly double or more from their current amount" by the end of 2013. Through the end of August, nearly 894,000 borrowers had refinanced through HARP. Forward-looking projections "are inherently uncertain," the FHFA noted.
"The more important point is that material changes have been made to enhance access to the program, but HARP – before and with these changes – is not intended to serve all borrowers, or even all underwater borrowers," the FHFA said in a Q&A sheet accompanying its announcement.
In a statement, FHFA Acting Director Edward J. DeMarco said the goal is to reach more borrowers who are able to refinance under HARP.
"Building on the industry's experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the enterprises," DeMarco said. "Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets."
The FHFA announced the following other enhancements in connection with HARP Phase II:
- waiving certain representations and warranties for lenders;
- eliminating the need for a new property appraisal where there is a reliable automated valuation model estimate provided by the GSEs; and
- extending HARP's end date through 2013 for loans originally sold to the GSEs on or before May 31, 2009.
The timing of Phase II implementation will vary by lender, the FHFA said. Fannie Mae and Freddie Mac will send operational instructions to lenders and servicers by Nov. 15, and some lenders should be ready to take in applications as early as Dec. 1, the conservator said.
Several industry groups have released statements applauding the changes. Chase quickly announced its plans to participate in the expanded HARP effort.
"We are pleased to work with FHFA to expand the HARP program because it should help thousands of Chase customers reduce their monthly mortgage payments," said Frank Bisignano, CEO of mortgage banking at the bank. "We estimate it could lower a family's mortgage payments by an average of $2,500 a year, providing them more financial flexibility and improving the quality of their lives."
Mortgage Bankers Association (MBA) President David H. Stevens said Phase II of HARP will reduce costs for borrowers and streamline the refinance process, as well as lessen credit risk for Fannie Mae and Freddie Mac. Lenders, he noted, "are particularly gratified that the refinements will provide relief from some representations and warranties that lenders face when originating new loans."
"These changes alone should encourage lenders to more actively participate in HARP," Stevens said.
Faith Schwartz, executive director of HOPE NOW, said the changes will go a long way toward helping borrowers who are current on their mortgage but unable to refinance at a lower rate because of negative equity.
"Most importantly, the removal of the LTV ceiling will go a long way in opening the door for homeowners with fixed-rate mortgages who were unable to refinance in the past," Schwartz said.
UPDATE: The MBA held a conference call Monday morning with officials from the FHFA, Fannie Mae and Freddie Mac to address the new HARP changes. During the call, Margaret Burns, a policy director at the FHFA, clarified certain elements of the announcement, including those relating to private mortgage insurance and borrowers' occupancy statuses.
In response to listener-submitted questions about PMI, the mortgage insurer seized by the Arizona Department of Insurance late last week, Burns explained that PMI's participation in Phase II has yet to be determined.
While the expanded refi initiative has received broad support from the private mortgage insurance industry, the degree to which PMI supports Phase II will be left up to the Arizona regulator. Burns commented that the FHFA has worked with other mortgage insurers that have dealt with regulatory actions and that those companies continue to support HARP. She said it is her hope that PMI will follow that lead.
With regard to occupancy status, officials on the MBA call said that the expanded HARP will accommodate loans on properties that were originally owner-occupied but have since become tenant-occupied. The terms on such loans will be different, and the pricing higher, Burns said. GSE loans that were owner-occupied from the start may be refinanceable through Fannie Mae's Early Refi program or Freddie Mac's Relief Refi effort.