HARP 3.0 chatter sparks private-label loan debate
Mortgage experts recently met with White House officials to discuss housing and mortgage issues, resurfacing the possible idea of establishing a Home Affordable Refinance Program 3.0 program.
Particularly, the Obama Administration is intending to push for a HARP 3.0 program, allowing private-label loans to be refinanced through Fannie Mae and Freddie Mac, according to analysts at Compass Point Research & Trading.
While it remains to be seen if such a structure will develop, the administration is currently in talks about changing the eligibility date for HARP refinancings, explained Inside Mortgage Finance.
However, Compass Point economists firmly believes two distinctive issues are at hand.
"While observers should remain cognizant of the potential for a focused public relations push to expand the HARP in the near future, we remain skeptical that the White House will spend the political capital necessary to accomplish either the creation of a non-agency refinancing vehicle or a change to the HARP eligibility date," said Isaac Boltansky, Kevin Barker and Jason Stewart of Compass Point.
Additionally, while the White House could likely support efforts to expand HARP in numerous ways, the support will be driven by political pretense rather than policy urgencies.
"We believe the observers expecting a different end to this most recent iteration of mortgage policy’s Groundhog Day will be sorely disappointed," Compass Point noted.
In comparison, Sarah Hu, chartered financial analyst of Royal Bank of Scotland (RBS), stated that while HARP 3.0 has been talked about in the market for quite some time, it has not gained much traction.
"Currently, HARP is only limited to borrowers with loans guaranteed by Fannie Mae and Freddie Mac as the government-sponsored enterprises already own their risk. To some extent, HARP has become the loss mitigation tools for the GSEs," she said.
As a result of congressional approval and resistance, extending HARP to include private-label loans does not seem near to reality at this point, Hu explained.
On a similar note, Jeana Curro of RBS explained that the biggest issue is the refinancing of seriously underwater loans because it would violate GSE charter to take on new loans where there is not credit enhancement via mortgage insurance, for example, for loans with loan-to-value ratios greater than 80%.
"To rework the GSEs charter would require an act of Congress. Furthermore, FHFA is very focused on winding down the GSEs and providing an avenue for the private-label market to grow again," she said. "I think by transferring risk to the GSEs it would only keep them around longer."
Compass Point examined either moving the HARP eligibility date back by one year or removing the possibility of changing the date completely.
"If the HARP eligibility date were to be pushed back by one year to May 2010, we estimate that between $27 billion and $43 billion in unpaid principal balance of mortgage debt could be re-HARPed," analysts explained.