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Wells Fargo: Here’s the impact of HARP extension, GSEs’ new high-LTV refi program

Eligibility rules of refi program will limit scope

After several delays, the government’s crisis-era Home Affordable Refinance Program was finally set to expire next month, until the Federal Housing Finance Agency announced Thursday that it’s extending the HARP deadline until the end of 2018.

According to the FHFA, the 15-month expansion is necessary to due to Fannie Mae and Freddie Mac implementing a new streamlined refinance program, which is designed for certain borrowers with high loan-to-value ratios.

The refi program is scheduled to launch in October 2017, but the program’s eligibility rules dictate that loans must have at least 15 months of seasoning to participate in the program.

By delaying HARP’s expiration, borrowers have another refi option until they would be eligible for the new refi program in January 2019, the FHFA said.

So what’s the impact of all of these changes? Not much, unless there’s another housing crisis, Wells Fargo said in a new report.

As Wells Fargo notes, the LTV threshold for the new refi program is 95% for single- unit primary residences for both Fannie and Freddie.

And considering the new program is only for loans that were originated after Oct. 1, 2017, the criteria for the program limits its impact, outside of one specific circumstance, Wells Fargo’s analysts write.

“The program is only offered to loans originated on or after Oct. 1, 2017, and the eligibility criteria considerably limit the population that can take advantage of the program,” Wells Fargo analysts Vipul Jain, Anish Lohokare, and Randy Ahlgren write. “From our perspective, the program appears to be geared toward having an efficient refinancing construct in place, should there be another housing downturn.”

The potential impact of the HARP extension is a little harder to predict as of yet, the analysts note.

“The delay of HARP expiration and the expected drop in HARP speeds would be the limited implication of (the HARP extension) announcement,” the analysts write of the impact of extending HARP on mortgage bond investors.

“However, the larger question is whether or not we see a rebound in HARP speeds given the pullback in higher coupon speeds,” the analysts conclude. This will give us a read on whether or not the expiration of HARP was driving prints lower.”

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