FHFA Director Edward Demarco is who the mortgage world has been waiting to hear from regarding recent talk of a government-led initiative to expand refinancing options. In last night’s speech to a joint session of Congress, although the focus was on jobs, Obama also noted his intention to help “responsible homeowners refinance their mortgages at interest rates that are now near than 4 percent.”
While this is markedly less extreme than some of the rumors that had been circulating in recent weeks, it’s still a significant undertaking given the implications for the secondary mortgage market. Whereas Obama and most mainstream news media are ill-equipped to speak to those implications, the head of the agency that oversees Fannie and Freddie is just the man for the job.
Demarco was somewhat receptive, but carefully alluded to the fact that any restructuring of HARP would have to strike a balance between benefitting homeowners and preserving current levels of credit risk for Fannie and Freddie (collectively “The Enterprises”).
“FHFA is carefully reviewing the mechanics of the HARP program to identify possible enhancements that would reduce barriers for borrowers already otherwise eligible to refinance using HARP.
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.”
This offers few guarantees to the Obama Administration, especially because it references borrowers who are already eligible to refinance with HARP, and simply alludes to making the process, in some way easier, faster, or smoother, all the while reminding us that FHFA has to take care of the Enterprises as well. This could leave the door open for a reduction in or elimination of LLPAs.
Additionally, it has been suggested that the current 125 percent LTV limit could be raised in an attempt to make this program more accessible, and that possibility cannot be altogether ruled out, but seems as if it would certainly be predicated on borrowers’ credit profiles, especially with respect to mortgage payments:
“FHFA is also considering the barriers to refinancing mortgages that would otherwise be HARP eligible but for having a current LTV above 125 percent, HARP’s current ceiling. There are several challenging issues to work through here and the outcome of this review is uncertain. Still, FHFA is carefully analyzing this group of Enterprise loans for inclusion in HARP. As we do so, our objective is to achieve the original and central purpose of HARP – provide borrowers in high-LTV loans who have a history of making on-time mortgage payments with an opportunity to refinance, resulting in reduced credit risk to the Enterprises and added stability to housing.”
Demarco aptly concluded the statement in saying “the final outcome of this review remains uncertain, but FHFA believes this undertaking is worthwhile.” Translation: FHFA wants to help homeowners, but isn’t making any guarantees on what that will look like.