HARP 2.0 Extension Expected to Prolong Lifespan of QE3

By Stevie Duffin Updated on 4/15/2013

By Daniel Duffield

Now that the Home Affordable Refinance Program, otherwise known as HARP, has been extended by two years from its original 2013 deadline, the Federal Reserve‘s purchasing of mortgage-backed securities could continue beyond previous estimates.

Essentially, the extension of HARP will lessen the potential for a smaller issuance of mortgage-backed securities during 2014 and 2015, a report released by Bank of America Merrill Lynch indicated.

According to Chris Flanagan and Matthew Carr, MBS strategists employed by BofAML, while analysts expect HARP volume to diminish in 2014 and 2015, estimates indicate that up to 2 million homeowners remain eligible for HARP refinances, suggesting that the pace of these home refinances will not fall off as much as once thought. In addition, the popularity of refinancing could persist as mortgage rates continue to hover at low levels and may even dip further in the coming months.

Moreover, including speculation that increased home purchase mortgage volume will persist with the strengthening of the housing market, many anticipate that the Fed’s assumption of the secondary market may not take place, removing the need for shrinking MBS purchases.

From the final quarter of 2011 into the beginning of 2013, approximately 1.375 million borrowers have taken advantage of HARP refinances, surpassing the initial aim of the Fed to aid roughly one million borrowers.

Presently, home prices continue to increase, rising 11.6% from December 2011 to February 2013.

The BofAML report additionally stated that, while allowing HARP to expire was a viable option for DeMarco, the announcement of the extension proved to be more than anticipated, with many experts expecting a one year extension.

Fundamentally, the extension seeks to address the 2 million HARP-eligible homeowners who have not yet refinanced into lower mortgage rates. With the two-year extension, these borrowers will be given such an opportunity, as well as some time to arrange finances and shop around for the best rates.