Enhanced HARP Program May Benefit Performing Borrowers

Modifications to the Home Affordable Refinance Program (HARP) due out November 15

For borrowers who haven’t been able to take advantage of today’s interest rate environment due to declining property values and erosion of equity, there may be hope yet. The Federal Housing Finance Agency (FHFA) just announced that it will expand eligibility for the Home Affordable Refinance Program (HARP) to include more Fannie Mae and Freddie Mac borrowers who have been timely in making payments, but may have very little equity or may already be under water. Industry experts estimate that the HARP program has benefitted around 900,000 borrowers to stay in their homes via refinancing;  the FHFA expects this guideline enhancement will substantially increase the number of eligible borrowers under the HARP program guidelines. Some estimate over 10 million households could now be eligible to refinance. FHFA’s goal is two-fold: By allowing these borrowers to refinance, not only is the financial position of these existing borrowers improved, but the borrowers are more able to continue to make mortgage payments which will, in turn, help Fannie Mae and Freddie Mac by not adding more defaulted loans to further increase their workload. Details regarding implementation are planned to be announced on Nov 15, at which point lenders will start to build out how to pass this through to borrowers.

Over the past few weeks, some of the impact of the Federal Reserve’s latest stimulus plan (dubbed ‘Operation Twist’) has been seen by its purchasing of approximately $1 billion of the $2 billion in daily mortgage-backed securities volume. However, there continues to be much public discussion and controversy amongst the Federal Reserve Governors regarding the Fed's stimulus plans, with some Fed officials pointing to additional asset purchases being needed in order to truly boost the economy. Whether this will create any real impact for the housing market has not yet been seen as mortgage rates remain fairly stable.  In fact, at a recent presentation by Chase Bank that I attended in Boston last week, the Chief Economist of Freddie Mac also supported this position by demonstrating how the home affordability index continues to climb as rates remain low and housing prices dip lower, but buyer confidence is at historical lows because of low GDP growth and uncertainty caused by high national unemployment rates.

Therefore, it is very important to keep current owners in their homes to prevent a further onslaught of short sale and foreclosure properties from looming over our heads in terms of shadow inventory and excess supply which would further put downward pressure on home prices.  The HARP guidelines, when announced, could definitely help the economy by meeting this goal of keeping people in their homes.  Only time will tell if what sounds good in concept, will actually work in practice.