Real Estate Market

One-in-three Fannie, Freddie refis are HARP loans, as high loan-to-value HARP loans comprise large share of hard-hit states' refis

(8/17/2012) - Homeowners shot down in a previous attempt to land a HARP refinance, have more to gain than to lose by trying for a HARP loan again.

In May this year, loans written under the Home Affordable Refinance Program (HARP) had jumped to 20 percent of all Fannie Mae and Freddie Mac Refinanced mortgages, the largest share since the Feds launched the program back in 2009.

A month later, the share zoomed to 33 percent, another new high, according to the newest Federal Housing Finance Agency's "Refinance Report June 2012".

Through June 2012, Fannie Mae and Freddie Mac refinanced 422,969 loans through HARP, more than all the 400,024 HARP refinances last year.

Record-low level mortgage interest rates, for sure, are contributing to the run on HARP loans.

However, Lender Processing Services says a HARP enhancement earlier this year gets just as much credit for prompting more homeowners to attempt a HARP refinance.

Under the original HARP, homeowners with Fannie Mae or Freddie Mac loans were ineligible if their existing mortgages exceeded 125 percent of their home's value. That bumped many homeowners in hard-hit states, Arizona, California, Florida, Michigan, Nevada and others, where loan-to-value (LTV) ratios submerged far underwater - some as deep as 200 percent.

Under the new and improved HARP 2.0 there's no LTV ceiling - it doesn't matter how far underwater a homeowner has become, provided the lender will bite. Apparently it's been a boon for homeowners in hard-hit states.

Higher loan-to-value impact

HARP refinances for loans with LTV greater than 125 percent surged in June to more than 40 percent of HARP volume as lenders began to sell Fannie Mae and Freddie Mac securities containing these loans June 1, FHFA reported.

More than 66 percent of borrowers in states hard hit by the housing downturn - Nevada, Arizona and Florida - refinanced through HARP in June, compared with 33 percent nationwide.

In Nevada, Arizona and Florida, underwater borrowers (with LTV greater than 105 percent) represented more than 80 percent of HARP volume in June, FHFA reported.

However, the new loan does have to be a fixed rate mortgage (FRM). For 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.

"For this month's Mortgage Monitor, we looked at Fannie Mae and Freddie Mac 30-year fixed-rate loans across a variety of loan-to-value ratios," explained Herb Blecher, senior vice president of LPS Applied Analytics.

"Since the beginning of this year, high loan-to-value refinances have increased significantly. As an example, 2006 vintage GSE (Government Sponsored Enterprise, Freddie Mac and Fannie Mae) loans with six percent interest rates and LTV ratios between 100 and 125 percent increased from a 10 percent annualized prepayment rate at the end of 2011 to more than 40 percent in June 2012. Our data also show that this rise in loan activity extends beyond that subsection - the same type of increase holds true across other vintages with the same characteristics," Blecher added.


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