The Diminishing Value of HARP 2.0

While home prices in the country have seen a promising increase (more than 12% in the past year), HARP 2.0, one of the most popular refinance programs of the past few years, is seeing a decline in popularity.  The reason for this is since the HARP 2.0 program allows for high loan-to-value (LTV) mortgages, and since those loan-to-value (LTV) numbers are declining with the increase in home values, the value of the federally instituted program is diminishing.  In the greater scheme of things, this is good news.

The numbers speak for themselves: During the first part of 2013, most HARP applications included a loan-to-value (LTV) of 105% or less.  Compare this to two years ago, when 7 in 10 HARP inquires had an LTV of 105% or greater.  Due to this shift, experts are conjecturing that the release of a new version of HARP—HARP 3.0—might be on the horizon.

Beginning in 2009, HARP was part of the Obama Administration’s economic stimulus efforts, allowing “underwater” homeowners to save an average of $3,000 a year by refinancing their “underwater” mortgage at lower rates.  The HARP program required lenders to refinance homes if the loan amount divided by the home’s value was 125% or less.  It also allowed homeowners to refinance without paying for PMI, even if they lost their 20% down payment amount to the downturn of the housing market.

Within the three years of its implementation, the HARP program boasted over 1 million closings, helping homeowners and lenders, as well as boosting the country’s economy and the economic outlook for the housing market.  Due to the program’s widespread success, HARP 2.0 was created in the later part of 2011, waiving the 125% LTV.  With HARP 2.0, LTV could be unlimited.

The changes that HARP 3.0 would bring could be even better news for homeowners looking to refinance, with the potential for extending the program beyond Fannie May- and Freddie Mac-originated loans.