Freddie: HARP changes to boost originations nearly $300 billion
Changes to the Home Affordable Refinancing Program could add between $200 billion and $300 billion mortgage originations over 2012 and 2013, according to Freddie Mac Chief Economist Frank Nothaft. Assuming a $200,000 loan balance, it would equal roughly 1.5 million mortgages. Last week, Fannie Mae and Freddie Mac released guideline changes to servicers and lenders in order to allow more underwater borrowers refinance into lower-rate loans. The HARP loan-to-value ratio cap, loan-level price-adjustment fees, some appraisal requirements and certain representation and warranty risk on the old loan file were removed. Estimates of the new program's effect vary. More than 4 million Fannie and Freddie borrowers are underwater. The Federal Housing Finance Agency believes the program could double from the 838,000 refis completed since the program launched in March 2009. Barclays Capital analysts said because borrowers who already went through HARP are not allowed to go through the new program again, prepayment speeds on higher-coupon mortgage-backed securities would be kept low. "In summary, we do not foresee any impetus for a significant pick-up in the prepayments of post-HARP originations," BarCap analysts said. "That said, there are signs that lenders may have started to reduce refinancing frictions, which could have contributed to the surprisingly sharp pick-up in lower coupons (3.5s and 4s) during the past two months." Moody's Analytics expect another 1.6 million borrowers should make it through the program with the new changes. Keefe, Bruyette & Woods analysts expect HARP volume to increase 10% per year over the next two years. "Allowing eligible borrowers to refinance (who otherwise may face a limited opportunity to refinance without paying down a significant chunk of their loan principal) and obtain substantially lower interest rates and monthly payments, will likely reduce defaults, ease distressed sales in markets, and provide needed cash flow to borrowers," Nothaft said in a November economic outlook report released Monday. He revised his mortgage origination estimates upward to $1.13 billion over 2012 from $1 billion the month before. Nothaft and other supporters expect the program to boost economic growth if more households have more disposable income to spend. Others said the program merely moves that money away from investors to homeowners, leaving any economic effect a wash. Nothaft's origination estimates for 2012 land above the $900 billion the Mortgage Bankers Association expects — though last month the trade group could not account for any effect from the new HARP program. The problem, despite a recent uptick in the economy, Nothaft said, remains unemployment, which remains above 9%. "The economic growth rate for the third quarter is barely sufficient to keep up with labor force growth, and insufficient to make a sizable dent in unemployment," Nothaft said. Write to Jon Prior. Follow him on Twitter @JonAPrior.