HARP Refinance Program Extended

The Home Affordable Refinance Program (HARP) has been extended for another year, hopefully to get more underwater borrowers into cheaper financing. The program, which allows borrowers with Fannie Mae and Freddie Mac mortgages to refinance up to 125% of the current value of their property, has so far helped only about 125,000 of the three to four million borrowers expected to benefit from it.

The program has flopped out so far for a variety of reasons. First, when the homeowners took out their mortgages, Fannie and Freddie's loan pricing was a lot more forgiving. Loan approval was largely pass / fail, a homeowner could refinance with a 680 credit score about as easily as he or she could with a 720 score, and everyone paid?? similar fees for their loans. Today's pricing imposes all kinds of surcharges for files deemed riskier -- credit less than 740, condos, cash out, high loan-to-value, etc. all costs more -- so much more that it often eats up whatever savings could be realized by refinancing.

Second, the mortgage insurance becomes a big monkey wrench in the refi process. While borrowers who didn't have mortgage insurance on their mortgage won't be required to get it on the refi, a major plus, those who already had mortgage insurance have to either keep the policy in force, which they can only do if they refinance with the same lender, or get a new policy (impossible in the current environment). Mortgage insurers lost so much money on foreclosures and walkaways that they are struggling to improve the strength of their portfolios, which means rejecting all but the most perfect applicants?? --?? and someone 25% underwater on a loan doesn't exactly make the A list.

Finally, lenders aren't exactly bending over backward to do HARP refis -- imagine, the only way you can refinance through the program is with your current lender, there is no incentive for it to be competitive in its pricing, and it's not exactly in a hurry to drop your rate from 6.25% to 5%. So your refinance sits, your lock blows, your fees eat up the savings, you get a headache, you can't sleep, you start hanging out in divey bars... or you just give up. After a while, the HARP isn;t music -- it's just annoying noise.