The Obama administration's Home Affordable Refinance Program (HARP) is set to expire on June 10. It's a central component of the federal government's foreclosureprevention efforts and is currently one of the only mortgage relief programs to help underwater borrowers refinance into more affordable loans.
With the sunset date looming, several industry trade groups have joined forces to urge the Treasury Department and the Federal Housing Finance Agency (FHFA) to extend HARP for another year, and they say a decision needs to be made by March 10 to minimize further disruptions to housing markets and prevent foreclosures on creditworthy borrowers.
Joining the Mortgage Bankers Association (MBA) in the push is the American Bankers Association, American Financial Services Association, Consumer Mortgage CoalitionbackPid, and the [Housing Policy Council
The organization's sent a joint letter to Treasury Secretary Timothy Geithner and FHFA Director Ed DeMarco, which stated, "HARP is just as critical today as it was last year when it was introduced. In its first months of operation, HARP has become a significant contributor to the refinance market. We urge that HARP be extended Ã¢â‚¬Â¦ to avoid market disruptions."
Under the program, borrowers with mortgages owned by Fannie Mae and Freddie Mac who are current on their payments can refinance into a lower-rate loan Ã¢â‚¬" even if their loan-to-value (LTV) ratio is as much as 125 percent, meaning the outstanding balance on their mortgage is 25 percent more than the home's current value.
FHFA noted when the 125 percent LTV was implemented that the program would "assist many homeowners who otherwise would have difficulty refinancing due to declining house prices."
As part of the HARP initiative, the GSEs also offer borrowers an incentive to reduce the length of their loan from 30 years to a shorter-term with a faster amortization schedule to allow them to pay down the principal more quickly and reduce lifetime interest payments in order to get "above water."
FHFA says the program "reduces the risk of default" associated with negative equity, and allows the GSEs to "better manage the credit risk associated with higher loan-to-value mortgages" Ã¢â‚¬" a market fixture that has quickly developed into a default trigger.
Although HARP doesn't expire for three and a half more months, the trade groups make a case for prompt action by the administration for an extension, because rates must be locked in at least 60 days in advance of a borrower entering the program.
"To keep creditworthy, performing borrowers in their homes and out of unnecessary foreclosure, to maintain neighborhoods and home prices, and to protect Fannie Mae, Freddie Mac, and taxpayers from unnecessary losses, we urge that HARP be extended for one year, without delay, until house prices rebound," the industry associations wrote in their letter.
"HARP also appropriately rewards borrowers who have worked hard to stay current on their mortgage loans and who continue to demonstrate a responsible use of credit," the groups wrote. "For those whose loan is underwater, HARP is the only viable option."
According to MBA and the other trade groups, 190,000 loans have been refinanced under HARP so far, with it having been in operation for less than a year.
As DSNews.com reported earlier this week, a new study by First American CoreLogic puts the number of underwater borrowers at 11.3 million as of the end of 2009. That equates to 24 percent of all homes in the United States with mortgages.