The Federal Housing Finance Agency on Thursday extended the government's Home Affordable Refinance Program for an additional two years through 2015. The program was set to expire at the end of this year.
Ed DeMarco, the acting FHFA director, said the program would allow more underwater borrowers whose loans are backed by Fannie Mae and Freddie Mac to benefit from low interest rates.
"More than 2 million homeowners have refinanced through Harp, proving it a useful tool for reducing risk," DeMarco said in a press release.
FHFA, which oversees Fannie and Freddie, did not provide any data on how many borrowers are still eligible for Harp.
The agency said it will launch a nationwide campaign to inform borrowers about the Harp program and its eligibility requirements. Harp was designed to allow underwater borrowers, who owe more on their mortgage than their home is worth, to take advantage of low interest rates and reduce the risk to taxpayers.
Eligible borrowers cannot have previously refinanced their loan, must have a loan-to-value ratio above 80% and must be current on their mortgage with no late payments in the past six months, and no more than one late payment in the last year.
The FHFA revised the program in 2011 to allow loan-to-value ratios greater than 125% and reduced the liability on certain loans as a sweetener to get mortgage servicers to market to their own customers. Harp 2.0 also eliminated the requirement that banks conduct a new property appraisal.
But the program has its critics.
The largest mortgage servicers including Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) are charging relatively high interest rates to borrowers that qualify, providing a huge boost to bank profits, and are getting paid premiums for selling the loans in bulk to Fannie and Freddie, analysts say.
Consumer advocates have complained that servicers are not offering the lowest rates to consumers, even though the program requires very little additional work or costs on the part of servicers, and servicers get the added boost of fee income from captive flood and title insurance.
Another criticism is that large banks have mined their own servicing portfolios, picking out borrowers who may be eligible for Harp, but have largely shunned borrowers whose loans they do not already service.