The revamped version of the Home Affordable Refinance Program (known as HARP 2.0) is up and running, nearly doubling the number of refinances it made the first quarter of 2012 –180,000 nationwide – compared to 93,000 in the fourth quarter of 2011.

HARP 2.0’s main revision was its removal of the 125% loan-to-value (LTV) cap. This means those seriously underwater homeowners whose mortgages are owned by Fannie Mae or Freddie Mac (collectively Frannie) may participate in the program and refinance into a low interest rate. Since the beginning of 2012, 4,400 of these refinances nationally were made for homes with LTVs greater than 125% – equal to roughly 2.5% of HARP 2.0 refinances in the first quarter.

Critics suggest Big Banks are profiting most from the increased refinances, as most lenders will only consider a refinance on an underwater home if they already service the loan due to the risk Frannie will put back faulty loans, limiting homeowners to refinancing with their existing lender. Thus, lenders are charging higher rates and fees due to the lack of competition, mainly benefiting Big Banks who already own or service the bulk of underwater mortgages.

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Critics demand fewer HARP 2.0 restrictions

first tuesday take

Yes, HARP 2.0 has granted more refinances in the first quarter of 2012 than in the fourth quarter of 2011. Still, compared to California’s 2.5 million underwater and near-underwater homes (as of the fourth quarter 2011, according to CoreLogic), 180,000 refinances nationwide is insignificant indeed.

Since its inception, HARP has granted 150,000 refinances in California. 1,000 of these were on homes with LTVs greater than 125%. In a recent first tuesday poll, 86% of respondents stated they did not personally know any homeowners who received a HARP 2.0 refinance. In a separate poll, 80% of readers claimed fewer than 10% of their clients would even qualify for HARP 2.0.

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HARP strikes back, but will lenders conform?

The intention of all this is to reduce the level of foreclosures and thus REO resales. But allowing Big Banks exclusively to profit from the program is a major flaw. Limiting underwater homeowners to refinancing with their original lender can only be detrimental to homeowners, as competition is essentially eliminated for their business, opening the door to padded rates and fees. Today’s SFR mortgage rate is 3.6%, but the refis are coming in at 4.25%.  Think “yield spread premium” on the sale of these mortgages.

To sum up, we’re glad HARP 2.0 is working for some, but there is still plenty of room for improvement, achieved by mandating more lenders participate.

Re: HARP Refinances Surge in First Quarter; More Underwater Borrowers Helped from the Federal Housing Finance Agency, HARP nearly doubles refinanced mortgages in first quarter from HousingWire and March 2012 Refinance Report from the Federal Housing Finance Agency