The goal of the HARP program as announced by President Obama, is to “provide access to low-cost refinancing for responsible homeowners suffering from falling home prices.”
The intention of the program is to offer borrowers the chance to refinance their mortgage so that responsible borrowers in a better position by reducing their monthly principal and interest payments or moving them from a more risky loan structure (such as interest-only or short-term ARM) to a more stable product.
Shopping for HARP Mortgage Rates
The Home Affordable Refinance Program (HARP) was founded to provide homeowners with a way to overcome the falling value of their real estate. HARP’s goal is to offer refinancing that enables responsible borrowers to reduce their monthly payments or provide them with access to a more stable financial product.
How to Shop for the Best HARP Rates
Finding the ideal rate for a HARP loan may not be an easy task because the market is constantly moving in one direction or another. By working with an approved lender, consumers may be able to gain a greater understanding of the latest market conditions and locate the rate that best meets their needs.
In the past, borrowers were charged additional fees for adjustments in LTV, credit and a host of other factors, but the government has recently placed a cap on the fees that lenders can charge borrowers. The changes are also known as Loan Level Price Adjustments (LLPA), and they may help eligible homeowners find lower rates without being subject to higher fees that could affect a consumer’s ability to save money by refinancing through the HARP system.
HARP rates are variable, and they may change several times during the day depending on the housing market’s current economic conditions. The price adjustments are usually based on a borrower’s credit history, occupancy of their home, the number of units covered in financing and the type of property.
Borrowers must also consider the idea of a lock period. Longer periods are associated with higher interest rates, and consumers have the option between periods that may be 15, 20, 30 45 or 60 days. Ideally, a borrower may want to wait until their loan is approved before choosing a lock period that is designed for their unique borrowing needs. In some instances, lenders require that borrowers receive written approval for their loan before they can lock in a lower interest rate.
Economic Conditions that Affect HARP Rates
Several economic issues affect HARP rates, and inflation is one of the primary factors that could cause the rates to move higher. Inflation is the amount that the costs for goods or services rises over a specific amount of time. When the cost for services or goods goes up, this is an indicator that HARP rates will also increase. When inflation rates go down, HARP rates will ordinarily decrease.
The Federal Reserve
The Federal Reserve is in charge of monetary policy, and they serve as an investor in the market in order to help the economy speed up or slow down. When the economy is doing badly, The Federal Reserve usually reduces interest rates in an effort to make more cash available to the public. This could help to lower HARP rates. When the economy is doing better, the Fed usually reduces the amount of money in circulation by increasing interest rates. This could cause the rates that are associated with HARP financing to go up.
Gross Domestic Product (GDP)
The GDP is a measure of government spending, and it usually gauges the economic health of a particular country. A high GDP may predict that mortgage rates will begin to rise. During times of a decreasing GDP, rates are usually reduced to encourage consumers to borrow and spend more money.
Mortgage rates are also closely related to the issue of unemployment. When the number of people who are out of work is high, HARP rates usually go down in an effort to confront deflation. When there are more people at work, mortgage rates usually rise because there is more money circulating in the economy.
Since the world is closely related, geopolitical issues can also have a huge impact on the rates that are charged with a HARP product. World events can easily cause a spike in energy prices, and this may reduce the amount of society’s disposable income, thus affecting the amount of currency that is in circulation. When war, natural disasters or other political events occur, a certain amount of anxiety occurs in the global financial markets, and investors usually look for a safe place to put their money, like bonds. When this type of event occurs, most borrowers notice a drop in interest rates.
The Secondary Market
In the lending market, there is a group of investors who purchase the loans that originate at local banks and financial institutions. This is termed the secondary market. These group of investors hold on to loans and rely on the interest to realize an increase on their initial investment. Often, these lenders may bundle their loans and sell them to other investors.
When loans are bundled and sold to investors, they usually find their way to buyers who pay a certain price for the product. These mortgages are termed Mortgage Backed Securities (MBS) because they are securities that are backed by an individual mortgage. Because the loans are generally seen as a safe place to store money, most investors are usually happy to take a lower return on an MBS. In addition, risks are reduced with MBS products because most are backed by Fannie Mae or Freddie Mac, organizations that are operated by the federal government. An MBS is also backed by the value of the real estate that is secured by the mortgage, thus helping lenders reduce their risks.
The Bottom Line
Inflation, the secondary market, geopolitical issues, the unemployment rate, the Federal Reserve and the GDP are a few of the factors that influence mortgage rates. Many consumers are not fully aware of the way in which these issues work together to cause interest rates to rise or fall. Lenders are not responsible for setting interest rates, they are simply acting in accordance with the larger market’s conditions.
If you are interested in learning more about the program and are question your eligibility for The HARP, feel free to contact us today at 866-442-2184 to speak with an experienced HARP lender.