The Home Affordable Refinance Program to help underwater homeowners refinance into lower-rate mortgages — and thereby lower their payments and stay in their homes — has finally started to catch on in the Washington area.
HARP’s initial impact was limited, even as interest rates dropped, reaching only about 900,000 borrowers between 2009 and 2011 instead of the several million policymakers had anticipated. Last fall the Federal Housing Finance Agency revamped the program, removing the loan-to-value limit and reducing fees and appraisal parameters. The revisions also eliminated several barriers to lender participation.
Nine months later, the FHFA said 20 percent of all refinancing in May was done through HARP, including 21.95 percent of deals in Maryland. Virginia lags behind at 17.1 percent for May, and the program remains underutilized in the District of Columbia, accounting for only 6.1 percent of transactions in May and just 4.45 percent in all of 2012.
The potential for HARP in the area appears huge. CoreLogic recently estimated 16,500 homes in the District were underwater or nearly so. The percentage of homes with negative or near-negative equity statewide in Maryland and Virginia is 29 percent and 28 percent, respectively, and the numbers for the states’ D.C. suburbs may well be similar. The FHFA House Price Index, based on Freddie Mac and Fannie Mae mortgages, shows an average decline in home prices of 4.66 percent in each of the past 20 quarters.
Robert Heltzel, president of Heltzel Mortgage and the Virginia Mortgage Lenders Association, said Northern Virginia was one of the hardest-hit areas in the nation when prices dropped. So even with the changes, borrowers face obstacles with HARP.
First, HARP is only available to borrowers with Freddie Mac or Fannie Mae loans. Many mortgages in this area, and especially in the District, were too large or otherwise failed to qualify as “conforming loans” at origination, and are therefore ineligible for the specialized refinancing. While loan-to-value ratio limits no longer are an issue, borrowers must be current on payments and meet other underwriting guidelines, such as having acceptable debt-to-income ratios and credit scores.
Despite elimination of the loan-to-value ceiling, few local and national loans actually have LTV ratios over the previous 125 percent cap. Heltzel said lenders, however, have kept their own LTV limits to make loans saleable to investors, limiting the number of homeowners who qualify.
Borrowers who are severely underwater can get help, though, and should talk to their current lender first, Heltzel said. Because these lenders already hold the loan risk, they usually are more willing to be flexible than a new lender.
Obstacles aside, Tina Gleisner of the Online Community of Women Homeowners said she senses her members often do not look at programs like HARP because they are embarrassed by their situation.
“They would rather struggle with their payments than admit they took on too much debt through repeated refinancing and home equity loans,” she said. “They simply don’t want to talk about it.”
