Government Refi Program to Take Form of HARP Revamp

President Obama's speech to Congress and the American public introducing his new Jobs Act included a pledge to refinance millions of home mortgages.

Documents released since then by the White House and a key housing regulator reveal that the government-led refi push will indeed center around an overhaul of the Home Affordable Refinance Program (HARP).

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""The president has instructed his economic team to work with ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com, their regulator the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA), major lenders, and industry leaders to remove the barriers that exist in the current refinancing program (HARP) to help more borrowers benefit from today's historically low interest rates,"" according to a fact sheet from the White House.

The administration stressed that an effective HARP face-lift has the potential to not only help responsible borrowers whose homes have lost value, but their communities by increasing the probability that the home won't go dark, and the American taxpayer by reducing risk to the government-backed GSEs.

Edward J. DeMarco, acting director of FHFA, has released his own statement on the administration’s refi initiative.

DeMarco says his agency has been reevaluating HARP to determine if there are ways to extend the benefits of this refinance product to more borrowers.

Since HARP was launched in 2009, approximately 838,000 borrowers had refinanced their mortgages

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through the program. DeMarco call it “a meaningful number” but he concedes that it is fewer than are eligible for the program and the results have become in below initial expectations.

Currently, the program covers only mortgages owned or guaranteed by Fannie Mae or Freddie Mac and originated before June 2009. To be eligible, borrowers must be current on their payments and have a current loan-to-value ratio (LTV) between 80 and 125 percent.

HARP allows borrowers to carry forward into the new loan any existing private mortgage insurance from the prior mortgage. If no mortgage insurance policy was in place on the first loan, none is required for the refinanced mortgage.

DeMarco says FHFA is reviewing the mechanics of the program to identify enhancements that would reduce barriers for borrowers who are eligible but have had trouble obtaining assistance through HARP.

He explained that FHFA is considering raising HARP’s LTV ceiling from the current 125 percent, but he stressed that there “are several challenging issues to work through here and the outcome of this review is uncertain.”

DeMarco says his staff has already been in discussions with a range of industry stakeholders on how to improve the HARP program to provide borrowers in high-LTV loans who have a history of making on-time mortgage payments with an opportunity to refinance.

“If there are frictions associated with the origination of HARP loans that can be eased while still achieving the program's intent of assisting borrowers and reducing credit risk for the enterprises, we will seek to do so,” DeMarco said.

He notes that most creditworthy borrowers outside of the HARP program parameters and with positive equity should be able to refinance their mortgage through normal market mechanisms.

DeMarco stressed that the GSEs have, in fact, completed more than 1 million streamlined refinances outside of HARP and nearly 7 million standard “rate and term” refinances since HARP was implemented in 2009.