Extending HARP eligibility could save mortgage borrowers $2 billion
Extending the Home Affordable Refinance Program eligibility date one year to mortgages originated through June 2010, which is being considered, could save new borrowers at the very most $2 billion per year, JPMorgan Chase (JPM) analysts said Monday.
The estimate is at the very top end and assumes every Fannie Mae and Freddie Mac borrower with loans originated in the new window would refinance into a 4.5% mortgage under HARP.
Chase analysts called it "a fairly small amount."
The Federal Housing Finance Agency extended HARP last year by eliminating several barriers, including some upfront costs, repurchase risk on the original loan and a loan-to-value ratio cap.
But the agency did not extend the eligibility date and kept the program open only to borrowers with loans originated before June 2009.
A bill from Sens. Barbara Boxer, D-Calif., and Robert Menendez, D-N.J., would extend the program for one year and eliminate repurchase risk for servicers refinancing a loan it doesn't own, among other expansions.
According to congressional aides, lawmakers are still in discussions about possible amendments and even bringing the Boxer-Menendez bill to a Senate Banking Committee vote before the Aug. 3 recess.
Loans written during the new window include fewer severely underwater borrowers. Chase analysts said only 20% would be high-LTV refis.
Some coupons have more risk than others. Few mortgages were originated for Fannie Mae 4% coupon stacks between June 2009 and June 2010. But Fannie 5% bonds "have a substantial portion of the outstanding balance" in this window, and half of these loans hold high LTVs.
Roughly $51 billion in Fannie Mae 5% coupon loans could be refinanced under the new HARP window, up from $23 billion as the program stands now, analysts said.
One possible compromise could be disqualifying a borrower from a second refinance under HARP. There is no explicit language in the guidelines preventing borrowers from refinancing through the program twice. Should the program be extended to June 2010, there would be a group of loans refinanced under HARP between the old and new cutoff dates that could take advantage of the program again.
"While there are no guarantees to investors concerning refi risk, changing the rules can cause risk premia (premiums) to increase," analyst said. "A compromise on this point could involve an explicit ban on re-HARPing. In other words, the HARP date could be extended one year, but borrowers would then be forbidden from participating in HARP more than once."