HARP 2.0 is Fastest-Growing Loan Segment

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The HARP 2.0 refinance program is finally opening up for homeowners whose mortgages are "severely underwater" mortgages. HARP loans for LTVs over 125% is the fastest-growing segment of all HARP refinances completed nationwide.

HARP  stands for Home Affordable Refinance Program. Occasionally it is called the Obama Refi, adn was created in 2009 as part of that year's economic stimulus program.

At the time, mortgage rates had been dropping but so had home values. In areas such as Los Angeles, California; Miami, Florida; and Phoenix, Arizona, homeowners were watching 30-year fixed rate mortgage rates fall into the 4s but there was nothing they could do to take advantage.

Left without home equity, millions of U.S. homeowners were prevented from refinancing into the day's low mortgage rates. Therefore the  government promoted the idea that if underwater homeowners could just get access to refinance, it would help them lower their monthly mortgage payments, therefore increasing their household cashflow, which in turn would increase consumer spending, which would help to move the economy ahead.

When HARP was launched, therefore, it instructed banks to take a different approach on home equity; it instructed them to ignore home equity so long as the homeowner wasn't more than 25% underwater.

When  first launched, it was anticipated to reach 7 million U.S. homeowners. After two years, however, statistics show that HARP had instead reached fewer than one million households.

This was because the government was asking banks to refinance HARP applicants, while holding banks fiscally responsible for due diligence errors on the original mortgage, which banks did not like. As well, the 125% loan-to-value limit proved to be limited. Many homeowners were more underwater than 125%.

HARP 2.0 indemnifies lenders for much of the due diligence and also removes the loan-to-value restrictions of its predecessor. 

With HARP 2.0, you can use any lender for a HARP refinance, and so long as you're refinancing into a fixed-rate mortgage, you get the benefit of unlimited LTV. Even with a loan-to-value of 250%, you can use HARP.

It was said the unlimited LTV would help HARP reach its promised goal of 7 million households. So far, it's working.

The month-by-month tally:

  • March 2012 : 3.6% of all HARP refinances were for LTVs over 125%
  • April 2012 : 7.5% of all HARP refinances were for LTVs over 125%
  • May 2012 : 4.4% of all HARP refinances were for LTVs over 125%
  • June 2012 : 42.8% of all HARP refinances were for LTVs over 125%

These figures are expected to remain high through July, August and the rest of 2012.

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