Home Affordable Refinance Program falls as interest rates rebound

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A federal housing refinance program rolled out in 2009 by the Obama administration has helped about 3 million struggling households lower their monthly mortgage payments by reducing their interest rates. But as interest rates have begun to tick up, the number of homeowners signing up to use the program has continued to decline.

The Home Affordable Refinance Program, known as HARP, had garnered about 3 million refinances nationwide as of November 2013, according to the Federal Housing Finance Agency.

Fewer than 65,000 Pennsylvania households refinanced through the program, while about 111,000 Ohio households did so, often avoiding foreclosure in the process.

"The Making Home Affordable Program has provided help and hope to America's homeowners," said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development in a statement. "Families across the country have used its tools to ... modify their mortgages, fight off foreclosure and stay in their homes, helping further stimulate our housing market recovery."

In May, the program deadline -- which had been set for Dec. 31, 2013 -- was extended to December 2015 to give more time to homeowners who owe more on their houses than the houses could sell for.

But as interest rates have slowly rebounded from all-time lows, HARP refinance activity has fallen -- sliding from 1.7 million nationwide in 2012 to 862,892 going through the process as of November 2013. Mortgage rates for 30-year loans are currently hovering around 4.35 percent.

The fact that rates are going up could be a factor in the slowdown in refinancings. Rising rates could shut the door for some homeowners whose current mortgage rates are close to the market rates.

Just as importantly, buyers have started purchasing homes again after several years of a home buying slump. And that business is often more appealing to companies handling mortgages than refinancing.

Don Frommeyer, president of the National Association of Mortgage Brokers based in Dallas, said one of the main contributing factors for the decline in HARP refinances is that mortgage loan originators are focusing more on the new home purchase market.

"If you put 10 loan originators in a room, you will have nine of them going after new purchases and one of them going after refinance business," Mr. Frommeyer said. "New purchases is where the focus is if you're going to make it in the loan origination business."

There are good reasons for that, he said. "With refinances, you'll have to call people and network. You won't get them sitting in the office. Loan originators are inclined to take the path of least resistance, and that is new purchases."

The HARP program was created to help homeowners who had been prevented from refinancing to a lower interest rate because they owed more on their homes than the structures were worth. When the program was unveiled in 2009, it only benefitted homeowners who were slightly underwater since only applicants whose loan-to-value ratio was 105 percent or less were approved.

But as the housing crisis deepened and home prices continued to fall, the federal government increased the loan-to-value ratio to 125 percent in order to help homeowners who were more seriously underwater.

In February 2012, federal housing officials introduced HARP 2.0, which lifted the loan-to-value cap altogether and allowed anyone to refinance through the program no matter how deeply underwater their mortgage is.

The HARP home refinance program is only available to homeowners whose homes are valued at less than the mortgage owed.

The main qualifications for HARP approval are that the homeowner must be current on the mortgage and the loans must be provided through government-controlled mortgage buyers Fannie Mae or Freddie Mac. The mortgage also must have been obtained prior to 2009.

According to recent estimates by the Federal Housing Finance Agency, there are up to 2 million HARP-eligible borrowers who have little to no equity in their homes and could reduce their monthly payments if they refinanced.

A survey by LoanDepot.com, a Foothill Ranch, Calif.-based mortgage lender found more than half of those who refinanced through the program in the last year had been turned down previously.

"Many underwater HARP-eligible homeowners have been turned down before, and now they assume they can't get help," said Jim Svinth, chief economist for LoanDepot.com.

The online mortgage lender conducted a survey that found 87 percent of borrowers are saving $1,200 or more a year, and 12 percent are saving $6,000 or more a year after refinancing through HARP.

At least one bank in this region has made HARP refinancing a priority.

Lenders at Columbus, Ohio-based Huntington Bank have been trying to get the word out by calling customers and sending them multiple letters, but many people still haven't taken advantage of the chance to refinance, said Jay Plum, the bank's executive vice president of mortgage and consumer lending.

"In a lot of areas of eastern Ohio and Western Pennsylvania, property values declined during the financial crisis and many customers found themselves at more than 100 percent loan-to-value and were unable to refinance," Mr. Plum said. "This program allows them to take advantage of today's low rates and be refinanced.

"This is a program designed to help customers who, through no fault of their own, have experienced difficulty in refinancing their first mortgage," he said.

"If anybody has a mortgage with a rate above 5 percent, they can save money. If they look at their mortgage and see that it's a high rate, they may have more options than they thought."

For more information on the HARP program, go to http://www.harp.gov/

Tim Grant: tgrant@post-gazette.com or 412-263-1591.

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