HARP refinances surge as distressed homeowners embrace program

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(MoneyWatch) Changes in the Home Affordable Refinance Program (HARP) program last year meant more than 1 million people refinanced under the government program in 2012, the most refinances done in any year of the HARP program to date, according to data released today.

The Home Affordable Refinance Program is four years old, yet half of the total number of refinances took place just last year -- about 1.1 million in 2012 and 1.1 million from 2009 to 2011. The revisions to the original HARP program (known as HARP 2.0) appears to have jump-started the otherwise lackluster program.

Beyond that, HARP 2.0 seems to have particularly helped struggling homeowners stay in their homes -- the people it was intended to help in the first place -- according to Federal Housing Finance Agency data. There was a staggering 600 percent annual increase in 2012 in the number of homeowners who were underwater that received HARP loans.

"Simply put, HARP refinances surged last year because more lenders embraced HARP 2.0 than the previous version, making the program widely available to the public," said Spencer Llewellyn, executive director of Loans 101, a company that provides data to the public about the mortgage industry. "The limited success of HARP 1.0 can be attributed to a lack of lenders that embraced the program. Essentially, lenders are where the 'rubber meets the road' and they ultimately determine the availability of most mortgage programs."

In late 2011, the FHFA worked to increase access of the program to homeowners, which helped push lenders toward embracing and offering it to customers. HARP 2.0 eliminated a lot of the restrictions hampering certain lenders and homeowners from participating in HARP 1.0.

"By working with Fannie Mae and Freddie Mac to enhance the program, we've increased access to HARP, especially for borrowers who are severely underwater," said Meg Burns, senior associate director for housing and regulatory policy for FHFA, in an e-mail. "Removing the 125 percent [loan-to-value ceiling, waiving certain representations and warranties for lenders, eliminating the need for a new property appraisal and eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages has proven successful."

Lifting the restrictions especially helped homeowners struggling with underwater mortgages. Nearly a quarter of the total loans refinanced in 2012 were for homeowners whose loans were worth more than 125 percent of the value of their home. While HARP participation increased over all categories of loan values, participation increased the most for homeowners that were underwater. The number of HARP loans overall increased over 100 percent, but that still can't match the huge increases in the number of underwater homeowners embracing the program.

Foreclosure ravaged states that saw the biggest decreases in home values were also the states that saw the largest uptick in HARP participants. In states like Nevada and Florida, more than half of refinances were through HARP. In contrast, about 21 percent of total refinances nationwide were done through HARP. Typically, a loan would do a HARP refinance because the homeowner is underwater, meaning the home is worth less than the mortgage amount, and cannot qualify for a refinance in a traditional mortgage program.

HARP 2.0 ends its run this year on Dec. 31, so those looking to refinance need to take advantage now while the program is still available and interest rates are still low.

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    Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.