The Federal Housing Finance Agency is still refinancing plenty of loans through Home Affordable Refinance Program ‒‒ in fact, more HARP refinances were done in December than in any other month of 2014 ‒‒ but HARP refinances are significantly down from a year ago, even if FHFA believes it has many more potential customers out there.
In a report released February 20, FHFA found that that with 30-year fixed mortgage rates averaging about 3.86 percent, the number of loans refinanced through 2014 made up 14 percent of total refinances nationwide last year, and 9 percent of all refinances in Q4.
The numbers might sound significant, but they are dramatically lower than where they were at the end of 2013. In the fourth quarter of 2014, FHFA approved 37,397 refinances through HARP. In the first quarter, it approved roughly 77,000, which itself was a sharp drop from the 115,000 HARP refinances recorded in Q4 of 2013.
Throughout 2013, FHFA averaged about 275,000 transactions per quarter, the number of which steadily declined as the year progressed. The same pattern emerged in 2014, charting a further dropoff in HARP refinances ‒‒ a phenomenon FHFA has yet to offer a solid explanation for.
In September, CoreLogic, looking at the steady erosion of HARP refinances, offered a possible explanation by saying that the national negative equity rate was down to 10.7 percent for all mortgaged homes at the time. FHFA's data does back up this idea: Through December, 27 percent of HARP refinances had a loan-to-value ratio of greater than 105 percent ‒‒ down from 40 percent through all of 2013.
What FHFA does come out and say is that it wants more people to take advantage of HARP refinancing. FHFA estimates that as of the third quarter of 2014, more than 652,000 borrowers nationwide “have a strong financial reason to refinance through HARP.” These are borrowers who meet basic HARP eligibility requirements, have a remaining mortgage balance of at least $50,000 and a remaining term of at least 10 years, with an interest rate at least 1.5 percent higher than current market rates. This, FHFA states, can save borrowers $200 a month on average.
The savings are more than a crib note for financial literacy. FHFA has, since looking at the results of HARP refinances a few years ago, been beating the same drum when it comes to the main benefit of the program ‒‒ borrowers who go through HARP are less likely to fall into delinquency, which in turn will keep inventories from bloating.
Borrowers in certain states are apparently listening. HARP refinances in Georgia and Florida, for example, comprised roughly 29 percent of all refinances in those states last year. Nevada and Michigan came closely behind, at 26 and 24 percent, respectively.