The Federal Housing Finance Agency
is considering the fate of the government's refinancing program, and Bank of America-Merrill Lynch
analysts said in a report Friday that an extension is likely.
The Obama administration launched the Home Affordable Refinancing Program in March 2009 to allow borrowers the chance to refinance out of negative equity and into lower rate mortgages.
"The program is now close to its second year anniversary and it would be fair to say that the program has not been as successful as originally anticipated," BofAML analysts said.
The program began to pick up speed at the end of 2010, but it is set to expire in June 30. Even the industry is onboard. The Mortgage Bankers Association wrote a letter
to the FHFA in February asking for an extension and a revamp. But the program has suffered from certain technicalities.
Because most borrowers eligible for refinance have higher credit scores, there are higher fees that often times rise above customary closing costs, and because so many are cash-constrained as it is, paying for a refinance just isn't feasible.
For those borrowers already with mortgage insurance, refinancing the loan under HARP required a complicated transferring process that kept numbers down. And even though mortgage refinancings picked up in the back half of 2010, lenders' capacities were too strained to focus on refinancing borrowers with loan-to-value ratios above 80%.
"Lenders in general are reluctant to refinance higher LTV borrowers for which they currently do not have reps and warranty liability," BofAML analysts added. "This is because lenders do not want to take rep and warranty risk and incur servicing costs for a loan that is likely to default."
The FHFA has the option to let the program expire in June or extend the program to several different lengths. This could be to either the end of the Home Affordable Modification Program, which expires at the end of 2012. HARP could also be extended for a short period to give lenders another shot at it then extended it for longer, say one year.
However, BofAML analysts said "the simple extension is the most likely scenario," but they also said the FHFA should push lenders to focus more on the program and improve its effectiveness.
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