HARP is Failing 3.4 Million Homeowners

by 12 Oct 2012

The Treasury Department’s Home Affordable Refinance Program (HARP) could double participation in the four year old program by homeowners seeking to refinance with small changes that would help 3.4 million homeowners take advantage of today’s record low mortgage interest rates, saving them some $14 billion in annual interest costs, according to an analysis by two CoreLogic economists published today.

Some 2.4 million borrowers, representing 4.5 percent of all mortgages, are eligible for the HARP 2.0 program but have failed to participate in the program, either because they owe more on their mortgages than they are worth or simply don’t know about the program.  Their average interest rate is 5.96 percent, 257 basis points above the going rate of 3.39 percent in the October 11 PMMS survey.  The CoreLogic economists estimate their average monthly savings would be $349, or $10 billion a year.

Another million borrowers are frozen out of HARP because they originated their loans after the program’s cut-off date for acquisition by the GSEs, May 31, 2009.  These borrowers, representing 2 percent of outstanding mortgages, pay an average interest rate of 5.22 percent.  If they could refinance at current rates, they could cut their monthly payments by $333 for an annualized savings of more than $4 billion a year.

“These borrowers paid for the refinance pre-payment option but cannot exercise it.  This means they are paying above market rates for their mortgages, and the forgone savings from refinancing are a forgone economic stimulus,” wrote the CoreLogic economists, Sam Khater and Molly Boesel.

The Home Affordable Refinance Program (HARP), originally introduced in 2009 to make it easier for borrowers whose mortgages are held by Fannie Mae or Freddie Mac to refinance and take advantage of lower rates, was redesigned in 2012 to increase the share of refinancing homeowners in high negative equity states.   A total of 1.54 million homeowners have refinanced under HARP and HARP 2.0 since its launch in 2009, however fewer than 100,000 refinanced under HARP in September despite current record low mortgage rates.   Recent rate declines have increased the spread between rates on new loans and outstanding loans to more than 100 basis points, the highest level in more than a decade.


  • by Joe Karns | 10/13/2012 10:16:08 AM

    I think the HARP 2.0 program has done a lot of good for homeowners but there is still room for improvement. Borrowers should have the choice to shop around at any bank they want and not essentially be tied to using their existing servicer, which appears to be the case from what I've experienced.

    Great article and keep up the good work.


  • by Steve Cook | 10/13/2012 10:59:51 AM


    Thanks for your comment.

    I agree with you. Though HARP has had its enough difficulties, I dont think it has been gtiven the credit it deserves for helping to relieve overall negative equity and helping more than a million homeowners reduce their monthly payments.

    I thought Sam Khater's critique was newsworthy and may help to improve the program.


  • by William Matz | 10/13/2012 1:26:47 PM

    This article seems unclear about HARP 2.0. E.g.,it refers to owners not taking advantage "because "they owe more on their mortgages than they are worth." H2.0 removed the 125% LTV cap and also made rental units eligible. However, many lenders impose "overlays" that are more restrictive, preventing full implementation of the program.

    Also, the comment "borrowers paid for the prepayment refinance option" is mysterious. FNMA borrowers do not have a prepayment penalty option. So I am unclear what that comment meant.

    HARP 2.0 would work fine if lenders would just allow it to work according to its terms. (BTW, same problem with VA streamline refis, where lenders are denying many veterans their right to refi.)


Is TILA-RESPA a good or bad thing long term?