HARP Refinance Activity Skyrockets Amidst Low Mortgage Rates

By Daniel Duffield

In February, HARP refinance activity saw a tremendous boost as a result of temptingly low mortgage rates that spurred many homeowners to refinance their underwater properties through the Home Affordable Refinance Program (HARP).

According to data released by the Federal Housing Finance Agency (FHFA) on Tuesday, over 97,700 homeowners took advantage of HARP 2.0 to refinance their mortgages, and during this timeframe, HARP refinances comprised a noteworthy 21% of total mortgage refinances.

In terms of homeowner loan-to-value (LTV) ratio, roughly 22% of those who refinanced through HARP in February carried LTV ratios exceeding 125%.

As during the final quarter of 2012, refinance activity has recently been fueled by historically low rates which continue to hover just above all-time lows, despite expert assertions that rates will rise once the Fed discontinues its mortgage-backed securities (MBS) purchases.

At present, advantageously low interest rates continue to drive refinance volumes ever higher, boosting the amount of HARP refinance loans acquired while rates continue to fluctuate near record lows, according to the FHFA.

Additionally, FHFA statistics indicate that February levels of HARP refinancing have pushed the total number of government sponsored enterprise (GSE) loan refinances up to roughly 2.36 million since the initialization of the Home Affordable Refinance Program.

Furthermore, in February, borrowers with LTV ratios exceeding 105% comprised 45% of HARP refinances, and 18% of underwater HARP refinances were obtained by homeowners with 15 and 20-year mortgage loans. Consequently, analysts believe that homeowners are currently attempting to build equity faster to avoid repeating the severe damage caused by the burst of the housing bubble.

Breaking down these HARP statistics by state, Nevada, Arizona, and Florida, states that were most significantly affected by the housing crisis, saw roughly 65% of all refinance through the HARP program.

Where is HARP 3.0?

 Throughout its history, the Home Affordable Refinance Program has received several updates which have broadened the pool of eligible borrowers for this beneficial refinance option. Despite these improvements, numerous underwater borrowers remain unable to qualify for HARP due to owning mortgages not purchased by Fannie Mae or Freddie Mac.

As a result, the concept of HARP 3.0 was introduced, which would effectively remove the requirements for the HARP program pertaining to Fannie Mae and Freddie Mac. While this program would benefit a wide range of borrowers, many experts have expressed doubt at whether it will ever be passed. Furthermore, with interest rates remaining fairly low and home prices rapidly increasing, an update to HARP may be deemed unnecessary, as more and more underwater borrowers are seeing a slight equity recovery with the current trends of the housing market.

Spring Housing Statistics: Homeownership Declines, Home Prices Rise

By Daniel Duffield

The percentage of Americans who own their residences decreased to 65% during the first quarter of 2013, falling from the 65.4% figure for the first quarter of 2012 and reaching the lowest rate of homeownership since 1995, the Census Bureau indicated today in a report. In terms of vacancy, the vacancy percentage for rented homes decreased from 8.8% a year previous to 8.6% during the first quarter of 2013, while vacancies for owner-occupied properties decreased from 2.2% to 2.1% over the same time period.

Presently, investors are purchasing up single-family homes in order to rent them out and take advantage of the high demand created by families who cannot meet the strict qualifications for mortgage loans. These investment home purchases, a considerable amount of which are funded in cash, have aided in the strengthening of the housing market and been a major cause of the upward pressure applied to home values.

According to statements made by Paul Diggle, a real estate economist for Capital Economics in London, in a phone interview, lending conditions remain severe, and with borrowers being unable to secure mortgage loans, investors have rushed into capitalize on this demand while it lasts.

Diggle further stated that homeownership will persist in its decline during the remainder of 2013. In terms of homeownership highs, U.S. homeownership reached its peak during the housing boom at 69.2% in June 2004, at which time credit requirements were fairly loose, especially by comparison with today’s standards.

Jed Kolko, chief economist for Trulia, Inc., said that homeownership has primarily been affected by restrictive credit standards, a shrinking housing inventory, the increased difficulty for borrowers to save for down payments, and the abundance of single-family rental properties.

In March, the amount of properties put up for sale in the housing market decreased 16.8% from the previous year, according to a statement from the National Association of Realtors (NAR).

During the first quarter of 2013, the amount of occupied homes rose to approximately 114.6 million compared with 114.1 million in the first quarter of 2012. Moreover, the number of rented properties increased to 40.1 million from 39.5 million a year previously. Owner-occupied properties declined from 74.6 million to 74.5 million.

Home Prices Increase Across the U.S.

Amidst the decline in homeownership, U.S. home prices continue to rise, signaling success in the ongoing housing recovery effort. In February, home prices saw the most prominent increase since May 2006 during the real estate boom, further demonstrating housing market strength.

According to the S&P/Case-Shiller index, home values in 20 cities increased a considerable 9.3% from February 2012 levels, exceeding expectations after an 8.1% growth during 2012. Additionally, compared with January 2013, home price increases reached a 7 year peak, seeing the most significant rise since October 2005. While mortgage rates remain just above all-time lows, analysts expect these price gains to fuel more selling activity, which could lessen the scarcity of housing inventory.

Ultimately, however, experts state that year-over-year data tends to be more accurate in assessing trends of home prices. For the second consecutive month, all 20 cities measured by the index saw a year-over-year increase in prices. As such, the housing market recovery seems to be having some success, although some analysts have expressed concerns over the formation of a new housing bubble.

Current Housing Affordability Leans On Low Mortgage Rates

By Daniel Duffield

At present, home purchases have become more affordable than during the past several decades, although experts caution that this trend could be reversed abruptly, due to the volatility of mortgage rates and how they play into the current housing trends.

As the housing market gains strength, home prices increases have exceeded analysts’ expectations; however, these gains have been entirely negated for home buyers as a result of the historically low mortgage rates available today. Presently, American homeowners pay approximately 37% less on monthly mortgage payments at the conclusion of 2012 than during the period prior to the bubble burst, according to a report released by Zillow. Surprisingly, however, home prices have risen 14.5% from historic averages, in relation to homebuyer incomes.

While interest rates today hover between 2-5%, rates have ranged between 6% and 13% from 1985 to 1999. Consequently, homebuyers have been able to afford purchases of larger, more expensive properties while paying less each month.

During the aforementioned period during the eighties and nineties, U.S. homeowners spent approximately 20% of their monthly incomes on mortgage payments, significantly more than today’s 12.5% average, according to Zillow.

Although home prices have risen, average U.S. wages have remained stable, being devalued due to inflation, or have declined. Prior to the burst of the housing bubble, homebuyers spent roughly 2.6 times their median annual incomes when purchasing a standard home; however, currently, borrowers spend 3 times their income, making home purchases 14.5% more expensive in relation to income, according to Zillow. This phenomenon essentially results from the historically low mortgage rates created by government subsidies.

According to Zillow Chief Economist Stan Humphries, housing affordability could very well be a short term trend, since current affordability leans heavily on low interest rates that have been predicted to rise over the next several years.

These predictions hinge on the fact that the Federal Reserve must necessarily discontinue its purchasing of mortgage-backed securities (MBS) sometime in the future, the act of which has been the catalyst driving and maintaining today’s low rates. While not immediate, this increase should take place during the next few years.

Once mortgage rates rise, homebuyer demand will be notably affected unless income growth matches this decrease in affordability. Otherwise, potential borrowers (especially first time home buyers) could find themselves unable to afford large mortgage payments, while homeowners will be unwilling to relinquish their exceptionally low rates by moving, instead opting to remain in their current residences.

In 24 of the 30 biggest metropolitan areas covered by Zillow, homeowners paid more for their mortgages at the end of 2012 in relation to the median income of their locale compared to between 1985 and 1999. This provides a warning indicator that, should rates rise even a slight degree, many potential buyers may find themselves unable to afford homeownership.

7 Things to Take Note of When Getting Pre-Approved

By Daniel Duffield

Before beginning the home purchase process, it is recommended that borrowers get pre-approval for a mortgage. In addition to the peace of mind that comes with knowing that the financing aspect is taken care of, pre-approval letters additionally help to avoid any delays within the mortgage application process and ensure that the transaction proceeds smoothly.

When getting pre-approved for a home loan, borrowers should consider the following items on the pre-approval letter and take these factors into consideration when shopping for a suitable home:

1.       Loan Amount

The most important consideration when looking over a pre-approval letter is the specified loan amount. Often, borrowers seek pre-approval solely to get a decently reliable estimate of how much they can afford on a home mortgage. Pre-approval takes into consideration a range of borrower qualifications, including debt-to-income ratio (DTI), loan-to-value ratio (LTV), and credit history. Taking into account this information, a pre-approval letter includes estimates for the loan amount, down payment required, and monthly mortgage payments.

2.       Status Date and Expiration Date – Pre-approval letters do not extend their guarantee indefinitely; in general, pre-approval letters will remain open for a period of 90 days from when the borrower’s credit was initially pulled.

3.       Mortgage Type – Depending on your circumstances, you may qualify for several different types of loans, including the standard conventional loan, a government-guaranteed FHA loan, or a military-exclusive VA loan. Your pre-approval letter will indicate which type of loan you qualify for.

4.       Loan Term – Mortgage loans can range in terms of their lifespan between 15 years up to even 40 year terms for fixed-rate mortgages (FRM). For adjustable-rate mortgages (ARM), the pre-approval will specify for how long the interest remain fixed, varying between 3, 5, 7, or 10 year fixed periods.

5.       Occupancy Status – This item is fairly straightforward; borrowers applying for a home purchase loan for a primary residence will see occupancy status listed as “owner occupied,” whereas other types of purchases may indicate “secondary residence” or “investment,” depending on the circumstances.

6.       Contact Information – Contact information refers to the avenues through which the borrower can contact the lender, and this often includes the lender’s name and address.

7.       Conditions – Some pre-approval letters include conditions that must be met prior to the lender’s granting of approval, such as the request for additional documentation.

Borrowers should note that, while pre-approval letters are a preliminary sign of mortgage approval, not all pre-approved borrowers will qualify during the home purchase loan application. Ultimate approval may be contingent upon the condition of the home, the appraisal value, title considerations, and other conditions.

HARP Refinancing Remains Strong in January

By Daniel Duffield

2013 HARP Statistics

 In January, roughly 470,000 mortgages owned by either Fannie Mae or Freddie Mac were refinanced to obtain lower mortgage rates and alter mortgage terms. With approximately 97,600 borrowers completing this transaction by taking advantage of the Home Affordable Refinance Program (HARP), HARP refinances remain strong during the start of 2013.

HARP 2013 Statistics

Since the initiation of HARP in 2009, over 2.2 million home mortgage loans have been refinanced through this program, according to the statistics presented by the Federal Housing Finance Agency in its January report on the HARP program. Breaking down these refinances by property types, borrowers have utilized HARP on 1.97 million primary residences, while refinancing 72,396 second homes and 215,580 investment properties.

HARP Volume and LTV

Additionally, in January borrowers with loan-to-value (LTV) ratios that exceeded 105% represented 47% of the volume of HARP refinances, the report indicated.

Furthermore, the amount of finalized HARP refinances for borrowers with exceptionally high LTV ratios remains significant in comparison to the total HARP volume. For example, approximately 20% of HARP refinances loans were obtained by borrowers with HARP LTV ratios exceeding 125%, the FHFA demonstrated.

Regional HARP Statistics

HARP data can also be analyzed and broken down to examine the regional differences in borrower refinance trends. In January, HARP refinances constituted a substantial 66% of total refinances in Nevada, exceeding the 21% national average by more than triple. Similarly, HARP refinances represented 56% of all refinance activity in Florida during January, the report stated.

HARP Data by Loan Product

In January, roughly 18% of HARP refinances were acquired by underwater borrowers for mortgages with 15-year and 20-year mortgage terms, which accumulate equity and amortize more quickly than standard 30-year mortgages, according to the FHFA.

HARP Recap and HARP 3.0

 HARP Introduction

The Home Affordable Refinance Program was initially created in 2009 in response to the bursting of the U.S. housing market bubble. With home prices plummeting, the HARP program offered an opportunity for underwater borrowers, those who owe more than their property’s value, to refinance their mortgages and obtain significantly lower mortgage rates. Due to the strict LTV requirements of most loan products, HARP soon became the sole refinance option for millions of borrowers who lost the majority of their equity due to the housing market collapse.

HARP 2.0 

While those who could qualify for HARP were given significant advantages, the original incarnation of the program placed strict limitations on borrower LTV, despite its goal of helping such underwater borrowers. As a result, HARP was updated to HARP 2.0, and these LTV restrictions were removed, along with several other tweaks to the program. 

HARP 3.0?

Although a significant amount of borrowers can now qualify for this refinance, HARP 2.0 still only applies to borrowers with mortgages owned by either Fannie Mae or Freddie Mac, which still severely limits the amount of eligible borrowers. As such, many have speculated about the release of HARP 3.0, dubbed #myrefi, which is expected to remove this requirement, allowing many more borrowers to take advantage of HARP. However, no official release date has been provided for this program and many have expressed some pessimism that it will ever be released.