With more than 700,000 Home Affordable Refinance Program refinancings in 2012 and a currently monthly pace of about 100,000 refinancings, data through December is projected to cross one million for HARP 2.0.
As a result, during the first quarter of 2013, HARP 2.0 is expected to be deemed a success, Bank of America Merrill Lynch (BAC) analysts said.
In early 2009, an estimated 3.5 million borrowers were eligible for HARP 1.0. The Federal Housing Finance Agency reported 931,000 refinancings through October 2011, leaving about 2.5 million eligible borrowers for HARP 2.0.
With the additional borrowers having refinanced, the current eligible population is right under 2 million. Volumes could stay elevated through the HARP of Dec. 31, 2013 should every single one of these borrowers apply for a refinance.
At least 250,000 better credit quality borrowers with FICO scores greater than 750 and loan size greater than 175,000, are expected to refinance and be sought after by originators.
While lower mortgage rates and aggressive solicitations may trigger a response from the remaining 1.7 million borrowers.
“This is where we expect capacity growth to make its biggest dent,” the analysts said.
An extension of the HARP eligibility date and allowing ‘re-HARPing’ of borrowers will gain more exposure and add an additional 500,000 borrowers eligible for extension.
For example, a May 2010 eligibility date will increase the pool of borrowers to 2.5 million. Eligibility dates of May 2011 and May 2012 could raise this close to 3 million and 3.5 million, respectively.
Given the current mortgage rates paid by said borrowers, if all of these borrowers refinance to a 3.4% mortgage rates is roughly $3 billion per year.
This is equivalent to higher payments from a 15 basis point increase in mortgage rates on the $5 trillion in outstanding agency MBS.
Click on the table to view incremental savings from HARP cutoff extension limited.
However, the first signs of volume slowdowns and the declaration of HARP 2.0 success may fuel debate.
“Risks of FHFA Acting Director Ed DeMarco being replaced or stepping down will correspondingly increase the decibel level on these possibilities,” the report stated.
Nonetheless, all of these outcomes are predictable and not actual results. The numbers show that the aggregate borrower savings from a date extension can be outdone by a slight marginal increase in mortgage rates, triggered by mortgage-backed securities spread widening.
