Revamping refinancing program would exclude many mortgages from refinancing

The Federal Housing Finance Agency plan to overhaul the Home Affordable Refinance Program (HARP) would mean that only 17 percent of Fannie Mae and Freddie Mac 30-year loans qualify for refinancing, according to a Royal Bank of Scotland analyst that HousingWire spoke to.

The analyst, Sarah Hu, said that HARP 2.0 (as it’s called by bond investors) has some benefits, but also some issues.

"Apart from the usual capacity constraints, the lenders' voluntary participation in the new HARP may be relatively ineffective," she said. "Additionally, the FHFA is also encouraging refinancing into a short-term mortgage, which we don't think borrowers will consider without a significant payment reduction."

In addition, with the reps and warrants issue taken care of, it is likely mortgages will face "more exposures to conventional rate-refi risk," according to Hu.

Mortgages interest rates of 5.5 percent and higher are likely to see increased prepayment speeds under the plan, resulting in a conditional prepayment rate of 5 percent to 7 percent, RBS said.

Hu expects this change will mostly impact loans with 5.5 percent to 6.5 percent interest rates originated in 2006 to 2008.

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