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
by Broderick Perkins
(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
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,
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
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
"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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