Report Suggests Relaxing HARP Rules to Help More Borrowers

If two tweaks were made to the Home Affordable Refinance Program (HARP), refinancing activity could increase ""substantially,"" according to a report from the ""Federal Reserve Bank of New York"":http://www.newyorkfed.org/.

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Despite rising home prices, there are still millions of homeowners struggling with little to no equity, report authors Joshua Abel and Joseph Tracy explained.

""Lender Processing Services' most recent estimate"":http://dsnews.comarticles/delinquencies-see-biggest-year-to-date-drop-since-2002-2013-07-08 found there are still 7.3 million loans that are underwater.

One ""sensible response"" to tackle the issue of negative equity is HARP, the report suggested. Since HARP's 2009 inception, more than ""2.5 million borrowers"":http://dsnews.comarticles/gses-refinance-nearly-107k-loans-under-harp-in-april-2013-07-08 have been able to refinance under the program, and many of those borrowers were underwater.

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For example, from January to April, 44 percent of homeowners who refinanced under the program had loan-to-value (LTV) ratios greater than 105 percent.

The researchers explained much of the program's success is due to program changes in 2012, one of which included removing the 125 percent LTV ceiling. However, it might be time for even more program changes, the report stated.

One change would be to remove the cutoff date that limits eligibility to Fannie Mae and Freddie Mac loans that were obtained by June 1, 2009. The second change would be to allow borrowers to refinance under the program more than once.

According to the New York Fed report, by eliminating the cutoff date entirely, the number of borrowers who would be ""in-the-money"" would increase substantially to more than 530,000, or by more than 30 percent. In-the-money borrowers are those who could recoup the costs of refinancing within three years based on the savings from HARP.

Under current guidelines, the authors estimate there are about 1.5 million borrowers who are eligible for HARP and in-the-money.

Additionally, by removing the rule that limits borrowers to just one HARP refinance, eligibility would increase by over 55 percent, the report found.