Helping borrowers with little or no equity in their homes refinance their mortgages has turned out to be far more difficult than government officials expected.
When the Home Affordable Refinance Program, or HARP, was rolled out in March, the Obama administration said that millions of borrowers would be able to refinance. By the end of July, just 60,000 borrowers had refinanced through the program.
Treasury officials say that the program was slowed by a plunge in mortgage rates that sparked a flood in refinance applications just as the administration rolled out the program. Thus banks were busy refinancing “run-of-the-mill” mortgage applications before moving on to HARP applications, which could be more complex to process. By then, mortgage rates had risen.
“It hasn’t met our expectations,” says Michael Barr, an assistant Treasury secretary. “It’s been too slow.”
Officials say that the program is expected to ramp up more fully later this year as it irons out technical hurdles. Logistical problems, from difficulty addressing second mortgages to mortgage insurance, have raised confusion and contributed to delays as borrowers work with their lenders who are charged with administering the program.
HARP, a counterpart to the administration’s effort to modify loans for homeowners at risk of foreclosure, is designed to help borrowers who are making their mortgage payments but haven’t been able to refinance and take advantage of low interest rates because their home values have dropped, leaving them with little to no home equity.
The program is open to borrowers whose loans are owned or guaranteed by state-backed mortgage-finance companies Fannie Mae and Freddie Mac but who owe more than 80% of there home’s value—the normal cutoff for refinancing a Fannie- or Freddie-backed loan.
The program was initially set up for borrowers who owed between 80% and 105% of their home’s current estimated value. In July, the administration said it would allow more borrowers to participate by including those with mortgages of as much as 125% of their homes’ value.
Fannie began accepting HARP loans with the up to 125% loan-to-values on Sept. 1. Freddie will begin accepting them in October. Fannie and Freddie don’t make loans directly to borrowers, but instead purchase them from lenders or guarantee lenders against losses.
Overall, Fannie and Freddie have refinanced 2.9 million borrowers this year. A survey of major mortgage lenders found that the number of completed refinances in this year’s first half increased 11% from a year earlier, including HARP, according to LPS Applied Analytics.
‘Good Chunk of Change’
HARP has helped some borrowers, like Tony Valles, who in July refinanced the $345,000 loan on his three-bedroom home in Whittier, Calif., which is valued at around $430,000. Mr. Valles couldn’t have refinanced through conventional channels because he didn’t have enough equity in his home.
His lender required …
Read the original article at WSJ
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