GSEs Expand Housing Subsidy Refinance Model Further, Making It Eligible To Virtually Anyone
Earlier today, the FHFA announced yet another expansion to its attempt to make near-record low mortgage payments a pervasive concept (via the Home Affordable Refinance Program or HARP), and pad retailers' bottom lines courtesy of subsidy bailouts of the GSE capital shortfall payments. The core of the announced transitions to HARP revolve around allowing borrowers to refinance mortgages regardless of how underwater homes are. Of note is the "enhancement" which removes "the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac." In other words, one can have negative equity equal to the full amount of the loan or more, and still be able to refinance into current record low mortgage rates (something which last week's near record drop in MBA refi rates of -17% may not be too optimistic on). That said, considering HARP's abysmal success record to date, with just 894,000 borrowers having refinanced using this subsidy program (considering anywhere between a third and half of all US mortgages are underwater), and since it is far more economic to be delinquent on one's loans than to refinance and actually have to pay something out of pocket in these here USS of A, we expect even this latest revision to be a massive failure. In fact, the only data that matters is the public announcement on November 3 and 4th of how many tens of billions in retail "top line" the GSEs will need to be funded for by the US Treasury, because at this point one thing is all too clear: the nationalized US mortgage industry, in which ever fewer people actually make any cash payments, is nothing but a massive subsidy pass thru vehicle for domestic retailer operations.
From the HARP term sheet:
The new program enhancements address several other key aspects of HARP including:
- Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
- Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
- Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
- Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
- Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.
And so forth.
Below is the full statement full of hope by FNMA CEO Michael Williams on the HARP changes:
"Today's announcement by the Federal Housing Finance Agency (FHFA) of enhancements to the Home Affordable Refinance Program (HARP) is a welcome development. By removing some of the impediments to refinance, lenders can more easily participate in the program allowing more eligible homeowners to take advantage of the low interest rates.
Since 2009, Fannie Mae has enabled more than 5.5 million families to refinance into a lower cost or more stable mortgage product. While HARP is only one refinancing program, it is a critical one for those homeowners who may be underwater on their mortgage and facing difficult decisions during these tough economic times. Fannie Mae will continue to work with FHFA, Freddie Mac, servicers, lenders and mortgage insurers to encourage more borrowers to pursue refinancing as interest rates remain low."
Fannie Mae will also continue to work with retailers, as it demands $20 billion or so in quarterly capital shortfall from Tim Geithner for missing cash which instead of being paid for mortgage purposes, ends up in Apple's EPS line.