While a full housing recovery has yet to be reached, Paul Ashworth, an economist with Capital Economics, notes that HARP 2.0 – launched in 2012 – opened up more refinancing opportunities for underwater borrowers, delivering a stimulus that was much needed.
Such a bold step ended up pushing the average number of mortgage refinancings through HARP from 30,000 each month to more than 100,000 per month in the June through August period of 2012.
"We were originally skeptical, but we have to admit it has made a significant difference," Ashworth wrote in his latest report.
HARP 2.0's success revolves around its expansion of qualified borrowers since the program opened refinancing opportunities to borrowers with loan-to-value ratios in excess of 125%.
When breaking out the numbers, about half of the 100,000 loans modified through HARP each month had LTVs above 105%, a quarter had LTVs above 125%.
Refinancing these loans into lower rates is a step towards stability for borrowers and a lift for the housing economy.
Still, Ashworth's report says the negative-equity problem will continue to be a headwind for the overall housing economy. Yet, his report says that headwind also is "finally beginning to fade."
It's fading not only through new HARP refi options, but home prices rose 5% over the past 12 months—a move that could help push upside down borrowers away from their current negative equity positions.
"Almost half of mortgage borrowers still don't have the 80% in home equity required to qualify for a standard refinancing that would allow them to take advantage of record low mortgage rates," Ashworth wrote. "But that picture will change rapidly if house prices were growing at as much as 10% per year. Almost 3.5 million borrowers could exit negative equity over the next 12 months."