Treasury Official: HARP Cut-Off Date Should Not Be Extended

Posted by Patrick Barnard on January 23, 2014 No Comments
Categories : Required Reading

The Home Affordable Refinance Program (HARP) should not be extended to allow borrowers with loans originated after the May 31, 2009, cut-off to become eligible, a U.S. Treasury official told an audience at the Structured Industry Finance Group conference in Las Vegas on Wednesday.

As per a Bloomberg News report, Michael Stegman, the Treasury's housing adviser, told the audience that very few homeowners whose loans were originated after May 31, 2009, are underwater. He said advancing the date could do more harm than good by prolonging market and investor uncertainties.

As the article points out, many industry professionals assumed that Mel Watt, the new director of the Federal Housing Finance Agency (FHFA), would extend the program so as to provide additional relief for struggling homeowners.

Stegman pointed out that up to 2 million borrowers – many underwater on their mortgages, despite rising home prices – are still eligible for the program, as their mortgages were originated prior to the cut-off date.

He said the Treasury would continue to push for legislation that would allow borrowers with loans in private-label securities to be eligible for HARP, according to the report.

‘A good first step toward a single-security-based future system that could be taken during the transition is to reduce the price gap at which Freddie Mac securities trade relative to Fannie Mae's securities by linking the two securities,’ he told the audience, as per the report.

Due mainly to rising interest rates, HARP participation rates have fallen far short of government expectations. Initially, the FHFA had forecast that 4 million to 5 million borrowers would take advantage of the program, however, as of the end of the third quarter of 2013, only about 2.9 million homeowners had refinanced through HARP since the program began in April 2009.

In response, the FHFA, along with government-sponsored enterprises Fannie Mae and Freddie Mac and other industry stakeholders, identified several issues that were deterring homeowners from using the program, including the fact that loans with loan-to-value (LTV) ratios greater than 125% were not eligible for HARP refinances and that the program's short duration (approximately 15 months) was discouraging lenders from participating.

After soliciting feedback from stakeholders, many of the problems with HARP were addressed, compromises were made and in October 2011, a re-branded program, ‘HARP 2.0,’ was launched. Changes included removing the 125% LTV ceiling and extending the duration of the program by 18 months.

Since that last round of changes, however, participation has continued to decelerate. As a result, in September the FHFA launched a campaign to raise awareness about HARP, including the rollout of new website. In addition the FHFA hired HGTV personality and Power Broker star Mike Aubrey to help raise awareness about the program.

Meanwhile, the Office of the Inspector General has identified additional barriers to HARP participation and a new round of modifications to the program has been proposed; however, the so-called ‘HARP 3.0’ program is yet to be approved and codified.

For more, check out the Bloomberg News report.

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