by Broderick Perkins
(4/26/2012) Erate Exclusive - Upgrades to the Obama Administration's Home Affordable Refinance Program (HARP) and low mortgage rates helped boost refinances by 13.5 percent recently, according to the Mortgage Bankers Association (MBA).
The association said HARP refinances accounted for 32 percent of refinances, while all refinances accounted for 75.2 percent of all mortgages, the week ending April 13, up from 70.5 percent the previous week, according to the association.
The HARP program has been expanded to help more homeowners avoid foreclosure. The program improvements came at a time when interest rates were at record lows.
MBA said the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.05 percent from 4.10 percent, with points increasing to 0.45 from 0.43 for 80 percent loan-to-value ratio (LTV) loans.
Refinancing also has been getting a boost from the anticipation of cheaper, easier-to-get Federal Housing Administration loans (FHA) refinances.
"Renewed concerns about sovereign debt in Europe led to a drop in rates last week, with the 30-year rate tying our survey low, reached in early February. Refinance activity picked up in response, increasing 13.5 percent for the week. Participants in our survey indicated that about 32 percent of this refinance volume was for HARP loans," said Jay Brinkmann, MBA chief economist.
Unfortunately, higher costs and tighter underwriting associated with FHA purchase loans sent demand for that mortgage sector spiraling.
"While purchase activity declined sharply for the week, this was mostly due to a 23 percent drop in applications for FHA purchase loans. This drop follows big increases in the demand for FHA loans over several weeks in anticipation of the FHA mortgage insurance premium increases that went into effect last week. This was the largest weekly drop in the government purchase index since the expiration of the first-time homebuyer tax credit in May 2010. The demand for conventional purchase loans was down only slightly," Brinkmann said.
So called "HARP 2.0" offers refinances for eligible homeowners with Fannie Mae or Freddie Mac mortgages made prior to June 1, 2009. A Making Home Affordable program, HARP is available until Dec. 31, 2013.
Homeowners must be current on their mortgage payments and have no late payments for the last six months prior to applying for the program. They may have no more than one late payment in the last 12 months.
As the most beneficial change, the program removes the 125 percent LTV ratio ceiling. Now, it doesn't matter how far underwater a homeowner has become, and that's a boon for homeowners in those hard-hit states, provided the new loan is a fixed rate mortgage FRM.
"Harp 2.0 should be a savior for borrowers in states hardest hit by the economic crisis where plunging home prices and sky high unemployment rates have made refinancing virtually impossible," said Nancy Osborne, Chief Operating Officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.
For HARP eligibility, the minimum LTV ratio on the old loan remains at 80 percent. While there is no LTV ceiling on a new FRM loan, if the new loan is an adjustable rate mortgage (ARM) the new loan can have no more than a 105 percent LTV.
Osborne said, "This program will definitely be impactful by permitting long struggling GSE mortgage borrowers to remain in their homes and to take advantage of the record low interest rates."
Effective June 11, FHA will slash upfront and annual mortgage insurance on refinanced FHA loans under it's Streamlined Refinancing Program for qualifying borrowers current on an existing FHA-insured mortgage signed on or before May 31, 2009.
The new lender is not required to verify the homeowner's income, employment, credit score or obtain an appraisal. The homeowner can be underwater, owing more than the home is worth.
The FHA says some 3.4 million households, with loans endorsed on or before May 31, 2009, pay more than a five percent annual interest rate on their FHA-insured mortgages. By refinancing through the FHA's streamlined process, with the lower insurance costs and lower interest rates, borrowers could save an estimated $250 a month or $3,000 a year.
Unfortunately, to offset losses in the refinance give-away, FHA also tightened credit and raised costs on its purchase loans.
Effective April 1, the FHA began rejecting home loan purchase applications if the applicant had an ongoing credit dispute or collections action of $1,000 or more on his or her credit report, if the applicant doesn't pay off the debt or work out an approved payment plan.
Then, on April 9, the FHA increased its annual mortgage insurance premium by 0.10 percent. If the loan-to-value is 95 percent or less the rate rose from 1.10 percent to 1.20 percent. If the loan-to-value is greater than 95 percent, the premium rose from 1.15 percent to 1.25 percent.
Upfront premiums also increased by 0.75 percent from 1 percent to 1.75 percent.
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