Getting on-time borrowers with high loan-to-value ratios into refinanced mortgages is likely to be a key focus of any federal refinancing plan to stave off defaults, according to analysts at Barclays Capital. Allowing borrowers with higher LTVs to refinance at lower rates is part of the government’s attempt to reduce credit risk for Fannie Mae and Freddie Mac, the analysts said. The Federal Housing Finance Agency, which oversees the mortgage giants, is considering removing barriers for borrowers with LTVs past 125% to refinance. “If there are frictions associated with the origination of HARP loans that can be eased while still achieving the program’s intent of assisting borrowers and reducing credit risk for the enterprises, we will seek to do so,” said Edward DeMarco, acting director of the FHFA. Barclays analysts said Demarco’s statement argues for improving the HARP program, not expanding it. “It seems that the FHFA is not looking to increase the amount of borrowers eligible for the HARP program by expanding the cut-off date, but is rather looking to enhance the efficacy of the existing program for current HARP-eligible borrowers,” according to the BarCap analysts. Changes to the two-year old federal plan have some concerned about a possible wave of refinancings and what that would do to mortgage-backed securities. “There is also likely to be a renewed focus on refinancing high LTV borrowers with strong pay histories, in a shift from the current scenario, where it effectively became a streamlined refinancing vehicle for low LTV borrowers,” the analysts said. Write to: Kerri Panchuk.
Barclays Capital sees HARP revamp as improvement not expansion
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