FHFA extends HARP, modifies new high LTV refinance program

Written By: Joel Palmer, Op-Ed Writer

Mortgage refinance activity is expected to drop off considerably this year and next due to rising mortgage rates. But a new program set to launch could create refinance opportunities for certain homeowners.

The Federal Housing Finance Agency (FHFA) first announced a new refinance program last year to help homeowners with loan-to-value (LTV) ratios that exceed Fannie Mae’s and Freddie Mac’s maximum limits. It established October 2017 as the launch date. 

Earlier this month, FHFA officials said they were modifying the program, yet will still make it available beginning in October.

The biggest change between the original program and the modified version is that there will now be an eligibility cut-off date.

When the new high LTV refinance program was first announced last year, FHFA indicated there would be no eligibility cut-off dates connected with the new offering. 

The program change announced in mid Augustwilllimit eligibility to homeowners with mortgage loans that originated on or after October 1, 2017. FHFA said incorporating an eligibility date “was necessary to preserve the objectives of the Enterprises' credit risk transfer (CRT) program.”

Under the CRT, Fannie and Freddie have transferred a portion of risk on $1.6 trillion of unpaid principal balance with a combined risk in force of nearly $54.2 billion as of March 2017.  

FHFA said the two enterprises will modify the structure of future CRT transactions to accommodate the high LTV refinance program by allowing the newly refinanced loans to return to the reference pools in place of loans that prepaid.  This will help preserve credit loss protection on the loans without unwinding the protection paid for through CRT transactions.

“The changes made to the High LTV Streamlined Refinance program appropriately balance continuing to offer assistance to underwater borrowers with protecting taxpayers,” the agency said in its statement.  

The program changes necessitated the extension of the Home Affordable Refinance Program (HARP). It was previously scheduled to expire on September 30.

Last year, FHFA said the new refinance offering would be “more targeted” than HARP. It would be similar to the outgoing program in that borrowers would not be subject to a minimum credit score, a maximum debt-to-income ratio, or maximum LTV. Appraisals would not “often” be required either.

Last year when FHFA announced the September 30 phase out of HARP, it said that more than 300,000 U.S. homeowners could still refinance through the program. 

The latest release shows that number has been cut by more than half, with only 143,000 homeowners still able to benefit from HARP.

With all the time that has already passed for underwater homeowners to refinance, and so few potential qualifiers remaining, why does FHFA need to extend HARP all the way through the end of 2018?

The agency explained that the extension ensures eligible homeowners will continue to have a refinance option. According to FHFA, 3.4 million homeowners have refinanced through HARP.

It also makes sense for those last remaining homeowners to take advantage of mortgage rates that, while recently on the rise, are still much lower than they were prior to the HARP eligibility date of 2009.

According to Fannie Mae historical data, the average rate on a 30-year mortgage in the months prior to the HARP cut-off date rarely fell below 5 percent and consistently hovered between 6 percent and 7 percent. Today, the average rate has been around 4 percent for much of 2017.

About the Author

As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.