This page is no longer maintained, because

  1. it is hard to quantify the link between refinancings and the state of the mortgage market, and
  2. to understand the housing market, it suffices to track data closer to inventory and prices, such as delinquencies and foreclosures.

Large scale mortgage refinancing


8 Mar 2011.

The drop in home values has derailed many homeowners' plans to refinance out of expensive mortgages. The government has introduced a number of special refinancing programs aimed specifically at unaffordable (including underwater) mortgages. FHASecure and Hope_for_Homeowners saw almost no uptake. The latest special program, HARP, allows refinancing for Fannie Mae and Freddie Mac loans with significant negative_equity. Fannie and Freddie refinanced 6.8 million loans between Apr 2009 and Dec 2010, of which 621,800 were done under HARP.

By reducing payments on large numbers of mortgages, this refinancing no doubt has had a positive effect on delinquencies and defaults. However, since negative equity is the most important predictor of default, and refinancing does not change a negative equity situation, it remains unclear just how strong any positive effect may be.


Clippings below covered through 1 Mar 2011.

Fannie and Freddie refinancing (8 Mar 2011) From Apr 2009 to Dec 2010, Fannie and Freddie refinanced 6.8 million loans, of which 621,800 were done under HARP.

FHASecure (21 Nov 2009) The main idea of FHASecure (introduced in Aug 2007 and revised in Apr 2008) was that borrowers who were in ARMs and could not afford the reset could refinance into an FHA_loan. In most cases the loan limit would have meant the existing loan holder would have to write off part of the loan. Probably only a few thousand refinancings were approved that would not have qualified under normal FHA programs, and FHASecure was discontinued in Dec 2008.

Hope for Homeowners (22 Nov 2009) Hope for Homeowners is an FHA refinancing program for underwater homeowners. On the borrower side, it required homeowners to sign a statement that they did not give false or misleading information on their original loan application, putting off many. On the lender side, it required in most cases that the original loan holder take a loss, as FHA would only insure 96.5% of the current appraised value, and few lenders were interested. From the 1 Oct 2008 rollout to Apr 2009, only 51 loans were refinanced. Further modifications of the plan were made in May 2009, but there has been no report of successful large-scale refinancings.

MHA program background (13 Nov 2009) Making Home Affordable is the Obama administration's plan, administered by the Treasury, to reduce foreclosures. The key components are:

  • HAMP – Home Affordable Modification Plan. The primary goal of this plan is to reduce the payments of borrowers with proven hardship to at most 31% of income through a combination of interest rate reduction, term extension, and payment deferral.
  • HARP – Home Affordable Refinance Plan. This is a plan for Fannie Mae and Freddie Mac to refinance their existing loans at lower rates for borrowers who are current. The key provision is that underwater homeowners may qualify: LTV can be up to 125% and there is no limit on CLTV.
  • 2MP – Second Lien Modification Plan. In this plan Treasury will pay incentives and share costs, under certain conditions, for modifying second liens in connection with primary loan modifications. Alternatively, partial payoff for second lien extinguishment is offered.

MHA is a solid attempt to address shortcomings of earlier plans and make a significant difference in the foreclosure crisis. For borrowers, there are explicit goals to qualify underwater cases and reduce the monthly payment to an affordable level. For servicers and lenders, cost-sharing and cash incentives are provided. For second lienholders, incentives and cash-out provisions help motivate cooperation. And a standardized approach to the NPV of a modification may reduce securitization issues. Probably the single biggest caveat is that underwater borrowers will remain underwater, perhaps still leading to numerous defaults.

The plan introduces significant distortions in standard metrics that will make it difficult for some time to evaluate the outcome: during the application and trial periods for HAMP, the delinquency status of the loan is unchanged and any foreclosure actions are put on hold.


  • Need for government programs (29 Mar 2009) According to RBS Securities Inc. (formerly RBS Greenwich Capital), 35% of mortgages were qualifiable for refinancing in May 2008, but only 3% in Jul 2008.
  • State refinancing (7 Apr 2009) As of summer 2007, several states planned to establish funds to help homeowners facing foreclosure refinance. The total amount of money involved was only about $500 million, too small to make very much difference.
  • Negative equity (30 Jun 2010) According to Congressional testimony by Laurie Goodman of Amherst Securities, negative equity is the most important predictor of default. Refinancing does not, of course, address this issue.

See also

Below are clippings used in constructing this page

States provide refinancing for a small fraction of delinquent borrowers

23 Jul 2007. WSJEE pA2.

“States Aim to Stem Tide of Home Foreclosures With Funds for Refinancing. Thaddeus Herrick”

“about a half-dozen states are setting up funds to help homeowners with high-risk subprime mortgages refinance to more-affordable loans. The states – which include Maryland, Massachusetts, New Jersey, New York, Ohio and Pennsylvania – are expected to invest a total of more than $500 million in the effort. … Some of the programs will be similar to existing government-lending programs, in which the state extends mortgages to homeowners and then sells those home loans, in some cases to companies such as government- sponsored mortgage-finance giants Fannie Mae and Freddie Mac. The state then recycles the proceeds from the sales to make additional loans. … Earlier this month, Massachusetts officials said the state's housing agency would team up with Fannie Mae to provide $250 million for a program that could keep about 1,000 delinquent borrowers from losing their homes. The Massachusetts Housing Finance Agency will sell bonds to cover $60 million of the funding, with Fannie Mae providing the remaining $190 million. New York Mortgage Agency officials say they expect to announce a $100 million program in the next several weeks that would help an estimated 500 homeowners. … In most cases, those who are more than 60 days delinquent won't qualify. As for those who do qualify, some are likely to be people who could refinance through private-sector lenders. … the Massachusetts program sets aside a risk-capital pool to cover 25% of losses from the program, something of an insurance policy. Borrowers must be no more than 60 days behind on their monthly payments in order to refinance into 30-year loans at fixed rates of about 7.75%. As in other states, eligibility is restricted to borrowers with a household income that doesn't exceed certain thresholds – 135% of the median income in the Boston area. In places like Boston, where home prices soared, only to fall in recent years, the refinancing plans' success will likely hinge on mortgage lenders' willingness to take a loss. Officials in some states say lenders will do so because in most cases they don't want to risk foreclosure, which can be more costly and time consuming. But lenders say they are likely to resist any pressure from the state to take a loss on their loans, or even to waive certain prepayment penalties. “Nobody wins in foreclosure,” said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association. “But it's doubtful mortgage lenders are going to agree to both take a hit and lose a consumer.””

Almost no loans currently qualify for refinancing

24 Jul 2008. FTUSA p25.

“US homeowners cut back refinancing. Nicole Bullock, Michael Mackenzie”

“High rates come at a time when homeowners are struggling to refinance mortgages because home values have fallen and banks have tightened their lending standards. According to RBS Greenwich Capital, just 3 per cent of the mortgage universe currently qualifies for refinancing. Two months ago that figure was 35 per cent.”

HARP targets 4 to 5 million borrowers

4 Mar 2009.

“FACTBOX-U.S. mortgage modification plan eligibility. by Mark Felsenthal and David Lawder; Editing by Leslie Adler”


  • Program targets 4 million to 5 million borrowers with solid payment histories on mortgages owned or guaranteed by Fannie Mae (FNM.N) or Freddie Mac (FRE.N) that were originated with a loan-to-value ratio of 80 percent or less.”


2 Oct 2009. FHFA report to congress.

“Federal Housing Finance Agency Federal Property Managers Report No.10”

“Refinance Report August 2009. Fannie Mae and Freddie Mac Refinance Volumes

                                 August 2009  [Apr 2009] to date  Year to date
Total Refinances                     358,689           2,215,495     3,236,542
  HARP LTV >80% - 1O5%                32,142              93,070        93,070
  All Other Streamlined Refis         39,773             170,032       170,032

Sep Refinance Report

2 Nov 2009. FHFA press release.

“FHFA Refinance Report Shows Refinance Volumes Dropped in September”

“–Fannie Mae and Freddie Mac refinanced more than 3.5 million mortgage loans in 2009 through September of this year. In the month of September, 262,000 mortgages were refinanced—a drop from the volume of the preceding month— with mortgage rates still higher than levels observed in the spring. The numbers were announced today by Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA), in its monthly report on Enterprises’ refinance volumes and the Administration’s Making Home Affordable Refinance Program (HARP).

The report covers January 1, 2009 through September 30, 2009. It shows that refinance volume decreased from August to September as the average interest rate on a 30-year mortgage in July and August – 5.22 and 5.19 percent respectively as reported by Freddie Mac – were at a level higher than the rates observed earlier in 2009. Refinancing volumes are strongly influenced by mortgage rates with the effect most visible on a one- to two- month lag. Mortgage rates have declined since August.

In July, FHFA announced the expansion of HARP to allow borrowers with LTVs up to 125 percent to participate. Fannie Mae began accepting deliveries of refinanced whole loans with LTVs over 105 percent up to 125 percent on September 1 and began accepting mortgage- backed securities (MBS) for loans with LTVs over 105 percent up to 125 percent on October 1. Beginning October 1, lenders began delivering HARP loans with LTVs greater than 105 and less than or equal to 125 percent to Freddie Mac. …

Fannie Mae and Freddie Mac Refinance Volumes

                                 Sep 2009  [Apr 2009] to date  Year to date
Total Refinances                  262,037           2,483,873     3,521,292
  HARP LTV >80% - 125%             23,503             116,677       116,677 
  All Other Streamlined Refis      30,979             201,492       201,492


Fannie Mae: HARP Refinance Loans are defined as Fannie Mae to Fannie Mae refinance loans with limited and no cash out that are owner occupied with LTV's over 80 to 125. Fannie Mae began accepting deliveries of refinanced whole loans with LTVs over 105 percent up to 125 percent on September 1. Fannie Mae began taking deliveries for mortgage-backed securities (MBS) for loans with LTVs over 105 percent up to 125 percent on October 1.

Freddie Mac: HARP Refinance Loans are defined as first lien Freddie Mac to Freddie Mac refinance loans with limited and no cash out that are owner occupied with LTV's over 80 to 105. On October 1, Freddie Mac began taking deliveries of HARP loans with LTVs greater than 105 and less than or equal to 125.

All Other Streamlined Refis are streamlined refinances that do not qualify as HARP >80% - 125% refinances. Fannie Mae implements streamlined refinances through the Refi Plus product for manual underwriting and DU Refi Plus product for loans underwritten through Desktop Underwriter. The product is available for refinances of existing Fannie Mae loans only. Freddie Mac implements streamlined refinances through the Relief Refinance Mortgage product. Loans may be originated by any Freddie Mac approved servicer.”

Negative equity is the most important predictor of default

8 Dec 2009. Congressional testimony.

“Testimony of Laurie S. Goodman”

  • The housing market is fundamentally in very bad shape. The single largest problem is negative equity.
  • The current modification program does not address negative equity, and is therefore destined to fail. …

7.9 million homeowners did not pay their mortgage in Q3 … we estimate that approximately 7 million of these 7.9 million homeowners will be forced into vacating their properties. And this estimate of 7 million units includes only the borrowers that have already stopped making their payments. …

At Amherst we did a study looking at all prime borrowers who were 30 days delinquent on their mortgage 6 months ago. We sorted these mortgages by the amount of equity the borrower had in their home. We then came back 6 months later, and looked at whether the borrower was at least 60 days delinquent. For prime borrowers with 20% equity, only 38% had become 60+ days delinquent. For prime borrowers with substantial negative equity (a combined Loan-to-value ratio of 141-150) 75% had become 60+ days delinquent. …

Negative equity is the most important predictor of default. When the borrower has negative equity, unemployment acts as one of many possible catalysts, increasing the probability of default. …

the OCC/OTS reports that in Q2, 30.5% of mortgage loans in bank portfolios received a principal reduction as part of he modification. The corresponding number was zero for Fannie, Freddie, Government guaranteed and private mortgages. Thus, when the same party owns the first mortgage, the second mortgage, and the servicing, they look to maximize the net present value of the loan and often choose to do principal reduction. It is important to note that modification on mortgage loans in bank portfolios have a much lower re-default rate than other types of loans.”

FHFA 3Q2009 Report

12 Jan 2010. FHFA third quarter report to congress.

“FHFA Foreclosure Prevention & Refinance Report, Third Quarter 2009.”

“Fannie Mae and Freddie Mac have refinanced nearly 4 million loans year-to-date through November 2009. The total refinance volume dropped in 3Q09 and October after the rate for a 30-year mortgage rose in June and remained above 5 percent throughout the third quarter. Total refinance volume then rose in November in response to a sustained decline in rates. Refinance volumes are strongly influenced by mortgage rates with the effect most visible after a lag.”

“Fannie Mae and Freddie Mac refinanced more than 155,700 loans through the HARP program through November 2009. From inception in April, monthly HARP volume increased and peaked in August at 32,141 loans. HARP volume declined from August to October then rose in November, following the same pattern as overall refinancing volume. HARP grew to 9.0 percent of total refinancing volume in August and September and increased to 9.8 percent in November.”

HARP extended

1 Mar 2010. Housing Wire.

“Government Refinance Program Gets One-Year Extension. by DIANA GOLOBAY”

“Federal Housing Finance Agency (FHFA) acting director Ed DeMarco today announced the extension of the Home Affordable Refinance Program, (HARP) for an extra 12 months, until June 30, 2011.”

FHFA Q4 2010 report

1 Mar 2010. FHFA Fourth Quarter Report.

“Foreclosure Prevention & Refinance Report Fourth Quarter 2010”

“The Enterprises' cumulative HARP refinancings increased 30 percent during the fourth quarter to just over 621,800 loans.”