CoreLogic® (NYSE: CLGX), a leading provider of information, analytics and business services, today released its response and commentary to the new HARP 2.0 program from Mark Fleming, the company’s chief economist:
On October 24th the administration announced changes to the Home Affordable Refinance Program (HARP). The new program, HARP 2.0, is redesigned to facilitate refinancing of insufficient and negative equity borrowers, those with loan-to-value ratios greater than 80 percent. HARP 2.0 continues to be a program for borrowers with mortgages sold to the GSEs prior to the end of May 2009.
Time will reveal the true impacts of HARP 2.0, but it is certain that many more borrowers will benefit than would have otherwise. The impacts will be targeted to housing markets and local economies that are the hardest hit by the housing collapse, as these are the markets with the largest shares of insufficient and negative equity borrowers. HARP 2.0 will be positive for the government-sponsored entities (Fannie Mae and Freddie Mac) because it reduces delinquency risk; positive for the origination market because it will generate additional demand for mortgage refinances; may have some modest impact on consumption and the economy; neutral for the housing market itself; and negative for bondholders of high coupon GSE mortgage-backed securities (MBS). There are no silver bullets that will solve the issues facing the housing and mortgage markets, only solutions that play their small part. In the end, the best solution will be a stronger economy and the passing of time.
Key changes to the Home Affordable Refinance Program include:
Because of the significant concentration of insufficient and negative equity in the markets hardest hit by house price declines, HARP 2.0 will provide targeted stimulus to borrowers in those markets. That said, HARP 2.0’s primary benefit––increased refinancing of insufficient and negative equity borrowers––will not be a panacea for the housing market directly, because it doesn’t address the two biggest downdrafts for housing: distressed borrowers and shadow inventory.
Benefits to key constituencies include:
The primary issue underlying HARP is insufficient and negative equity risk preventing borrowers from access to today’s low cost credit, a deterrent to consumption and improvement of household balance sheets. Nationally, based on the CoreLogic quarterly negative equity analysis, there are more than 20 million borrowers who have insufficient or negative equity positions on their homes accounting for all outstanding liens. Additionally, 4.7 million of these households are underwater by 25 percent or more. Nevada and Florida rank 1st and 3rd for the highest levels of negative equity (60 percent and 45 percent respectively) and account for 2.3 million, 21 percent, of the underwater mortgages nationally. In those same two states, the share of loans that are current in the GSE portfolio is significantly lower than in the overall GSE portfolio. Florida and Nevada loans in the GSE portfolio are current at rates of 85 and 87 percent respectively, while the GSE average is approximately 93 percent. It’s not surprising that where insufficient and negative equity is concentrated is also where delinquency levels are higher. Therefore, the HARP 2.0 requirement that the borrower must be current reduces eligibility in many of the areas where negative equity presents the biggest impediment to refinancing. Of course, delinquent and underwater borrowers can potentially be considered for broader loan modification programs, as opposed to refinancing options such as in HARP 2.0.
Because of the concentration of insufficient and negative equity, the tax benefit of reduced mortgage payments will be a targeted stimulus to many of the hardest hit markets. Benefits will accrue to the GSEs in the form of reduced delinquency risk. The mortgage origination market will experience increased volumes in 2012 and 2013, and investors will experience increased prepayment speeds. The local housing markets themselves will have no immediate benefit but may over time due to the economic stimulus of the tax benefit and reduced delinquency risk in the future.
CoreLogic (NYSE: CLGX) is a leading provider of consumer, financial and property information, analytics and services to business and government. The company combines public, contributory and proprietary data to develop predictive decision analytics and provide business services that bring dynamic insight and transparency to the markets it serves. CoreLogic has built the largest U.S. real estate, mortgage application, fraud, and loan performance databases and is a recognized leading provider of mortgage and automotive credit reporting, property tax, valuation, flood determination, and geospatial analytics and services. More than one million users rely on CoreLogic to assess risk, support underwriting, investment and marketing decisions, prevent fraud, and improve business performance in their daily operations. The company, headquartered in Santa Ana, Calif., has more than 6,500 employees globally with 2010 revenues of $1.6 billion. For more information visit www.corelogic.com.