HARP refinancings take off

As mortgage rates continued to hit new depths, the number of refinancings completed through the Obama administration's mortgage refinance program more than doubled year over year in May, according to a monthlyreport from the Federal Housing Finance Agency.

Last fall, the FHFA, which regulates government-sponsored enterprises Fannie Mae and Freddie Mac,announced several changes to the Home Affordable Refinance Program (HARP) in an effort to boost participation.

The changes included lifting the previous 125 percent loan-to-value (LTV) cap on HARP refinancings, and releasing lenders who sign off on a refinanced loan from some legal liabilities associated with the original loan.

The new HARP guidelines also eliminated some risk-based fees if homeowners refinanced into shorter-term mortgages that would get them out from negative equity situations more quickly.

HARP refinancings rose to 67,456 in May from 25,475 in May 2011. More than two-thirds of those refinancings were to borrowers with LTVs of 80 to 105 percent, meaning they either had equity in their homes or were only slightly "underwater."

But nearly a third of HARP refinancings were granted to borrowers above the 105 percent LTV threshold, meaning they owed considerably more on their mortgage than their home was worth.

The program completed more refinancings of underwater mortgages in the first five months of this year -- 78,273 -- than in all of 2011 (59,991).

Source: FHFA 

Underwater borrowers also increasingly chose shorter-term 15- and 20-year mortgages: 19 percent chose such mortgages in May, compared with 10 percent in 2011 overall.

Source: FHFA  

HARP refinancings accounted for 20 percent of all refinancings, the greatest proportion since the program's inception in 2009. Since then, HARP has completed a total of 1.3 million refinancings, or about 11 percent of Fannie Mae and Freddie Mac loans refinanced during that period.

HARP refinancings accounted for more than 40 percent of May refinancings in four states with high foreclosure rates: Nevada, Arizona, Michigan and Florida.

Source: FHFA   

Some foreclosure-ridden states also had high shares of HARP refinancings to underwater borrowers. In Nevada, Arizona, Florida, Idaho and California, underwater borrowers accounted for at least 42 percent of all HARP refinancings in May.

Source: FHFA   

In order to qualify for HARP, loans must be owned or guaranteed by Fannie Mae or Freddie Mac and must have been sold to the GSEs on or before May 31, 2009. Borrowers must have a loan-to-value ratio above 80 percent and must be current on their mortgage payments at the time of the refinance. Borrowers may have had one late payment in the 12 months prior to the refinance, but not in the six months before the refinance. 

Refis surge as mortgage rates probe lows

Homeowners are once again rushing to refinance their mortgages as rates continue to hold at or near record lows, but demand for purchase loans is weaker than it was at this time last year.

Worries that the European debt crisis will trigger another global recession makes bonds and other conservative investments -- including the guaranteed mortgage-backed securities that fund most home loans -- look like safe havens to investors. Increased demand for those investments has pushed yields down.

Rates on 30-year fixed-rate mortgages averaged 3.78 percent with an average 0.8 point for the week ending May 24, down from 3.79 percent last week and 4.6 percent a year ago, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey. That's a new low in Freddie Mac records dating to 1971.

For 15-year fixed-rate mortgages -- a popular option for refinancing -- rates averaged 3.04 percent with an average 0.7 point, unchanged from last week but down from 3.78 percent a year ago. Rates on 15-year loans have never been lower in records dating to 1991.

Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.83 percent with an average 0.6 point, unchanged from last week but down from 3.41 percent a year ago. Rates on five-year ARMs hit an all-time low in records dating to 2005 of 2.78 percent during the week ending April 19.

For one-year Treasury-indexed ARMs, rates averaged 2.75 percent with an average 0.4 point, down from 2.78 percent last week and 3.11 percent a year ago. Rates on one-year ARMs hit an all-time low in records dating to 1984 of 2.72 percent during the week ending March 1.

Low rates have unleashed another wave of refinancings, but tight lending standards have helped keep a lid on demand for purchase mortgages.

The Mortgage Bankers Association today upped its forecast for 2012 mortgage refinancings by almost $200 billion. The MBA now expects lenders will refinance $870 billion in mortgages this year, about the same level as 2011, a banner year for refinancings. The trade group now expects purchase mortgages to total $409 billion, down from a previous estimate of $415 billion.

"Deterioration of the debt situation in Spain and Greece and a new regime in France that is a weaker proponent of European austerity, along with slower economic growth globally, have driven the U.S. 10-year Treasury yield down," said Mike Fratantoni, MBA's vice president of research, in a statement. The MBA is projecting "lower U.S. mortgage rates for the rest of the year and raising our refinance forecast as a result."

The MBA's Weekly Mortgage Applications Survey showed demand for purchase loans fell a seasonally adjusted 3 percent during the week ending May 18 compared to the week before. Demand for purchase loans was down 4.2 percent from the same time last year.

Requests for refinancings picked up for the third week in a row, with refi applications at their highest level since February.

As European leaders prepare for a possible Greek exit from the euro, China's industrial sector -- which depends on exports to Europe and other markets -- is in its longest slowdown since the 2007-2008 financial crisis, Reuters reports. Germany and France are also seeing greater-than-expected contraction in manufacturing, and an index gauging U.S. manufacturing slipped in May, the news service said.

Britain is already in its second recession since the financial crisis, and this week the International Monetary Fund suggested that the Bank of England move beyond "quantitative easing" and start buying private-sector assets, Reuters said.

European markets "are poised to implode before the next Greek election on June 17," Boulder, Colo.-based mortgage broker and syndicated columnist Lou Barnes said in his most recent column.

If Greek voters reject austerity measures imposed as a condition of financial assistance, the country would be forced to withdraw from the euro.

"Reversing the euro to local currencies would be briefly chaotic, and slow the global economy, but it is the one way to rationalize the economies involved," Barnes said.