CoreLogic expects HARP 2.0 to help hardest-hit housing markets
The government's revamped mortgage refinance program may be somewhat of a boon to the hardest-hit housing markets because they have the largest share of borrowers in negative equity, but the plan isn't a panacea for all that ails the housing market, CoreLogic ($27.18 0%) said Monday.
"Time will reveal the true impacts of HARP 2.0, but it is certain that many more borrowers will benefit than would have otherwise," CoreLogic wrote in its report. "The impacts will be targeted to housing markets and local economies that are the hardest hit by the housing collapse, as these are the markets with the largest shares of insufficient and negative equity borrowers."
The real estate data and anlaytics firm warned HARP 2.0 fails to address two of the issues plaguing the housing market today: the number of distressed borrowers and the nation's shadow inventory.
The program is limited in that it helps certain areas of the market and provides a boost to the government-sponsored enterprises. The reason for this is the fact that refinanced Fannie or Freddie mortgages reduce the default risk for the GSEs, as well as future delinquency risks.
For example, Florida and Nevada, two of the states with the highest levels of homeowners in negative equity, stand to gain disproportionately compared to stronger markets. Nevada and Florida rank 1st and 3rd for the highest levels of negative equity, 60% and 45% respectively, and account for 2.3 million, 21%, of the underwater mortgages nationally.
"In those same two states, the share of loans that are current in the GSE portfolio is significantly lower than in the overall GSE portfolio. Florida and Nevada loans in the GSE portfolio are current at rates of 85% and 87% respectively, while the GSE average is approximately 93%," said the report.
CoreLogic said about 2 million new transactions will enter refinancing after HARP 2.0.
"With the origination market estimated to be between $1.1 trillion to $1.2 trillion for this year and assuming similar volumes next year, the effect of HARP 2.0 could be a 15% boost in volume next year that would otherwise have been unlikely to happen," CoreLogic wrote. "Of course, any increase in mortgage rates in 2012 or 2013 will dampen the impact."
Despite some of the positive impacts of the plan, CoreLogic noted that the program will not significantly reduce strategic defaults.
"This is because the program only offers the potential of lower payments but doesn't reduce principal, so borrowers will continue to hold mortgages that are significantly higher than the values of their homes," according to CoreLogic.
And since borrowers have to be current on their existing loans to qualify for HARP, the program will not reduce shadow inventory levels.
"Therefore, there is little direct and immediate benefit to the impacted housing markets in the near term or to the borrowers who are already delinquent. Benefits of HARP 2.0 will be longer term in the form of reduced, new distressed assets," the company said.
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