HARP 2.0, Record Low Rates Fuel Refinancing Boom

Fixed mortgage rates have hit new lows for three straight weeks, fueling what seems to be a rarity in the post-crisis market – a sustainable refinancing wave.

The boom is being bolstered by several factors, including surging interest in the enhanced Obama Administration effort to expand historic homeownership affordability to underwater borrowers – especially those holding mortgages from Fannie Mae and Freddie Mac, the government-sponsored companies.

The Home Affordable Refinance Program, now dubbed HARP 2.0, has drawn half a million applications as of the last report by U.S. housing officials, who could see up to 2 million refinance applications through the revamped program that launched unofficially in March.

The Mortgage Bankers Association said that HARP 2.0 accounted for 28 percent of refinance applications last week.

The biggest jumps in refinance applications have take place in states with the highest rates of underwater homeowners, those who owe more on their mortgages than the worth of their homes. Refinance applications in Nevada, where 61 percent of borrowers are underwater, have jumped 267 percent since the new HARP guidelines were announced late last year.

Under the original HARP, lenders refinanced more than 1.1 million mortgages owned or guaranteed by Freddie or Fannie since the program’s launch in 2009. But only slightly more than 110,000 affected underwater borrowers with loan-to-value (LTV) ratios above 105 percent.

The focus of the expanded HARP 2.0 is homeowners current on their payments, but who owe much more on their mortgages than their homes are worth. The new HARP eliminates the LTV ceiling, reduces certain risk-based guarantee fees, and extends the program’s end date to December 2013.

There are conflicting reports on the scope of HARP 2.0 engagement by lenders

About one-third of banks reported that they were “actively soliciting HARP 2.0 applications,” the Federal Reserve reported in its Senior Loan Officer Opinion Survey for April.

A majority of those participating said they anticipated that 60 percent or more of such applications would be approved and successfully completed.

Nonetheless, the refinance share of mortgage activity last week increased to 74.9 percent of total applications from 72.1 percent the previous week, reported the Mortgage Bankers Association.