Mortgage Rates Sustain Their Upward Bounce

Mortgage rates edged up for the second week in a row, but they remain near the bottom, as an increasing number of underwater homeowners finally get to refinance their loans.

The benchmark 30-year fixed-rate mortgage rose to 3.81% from 3.77%, according to the national survey of large lenders. The mortgages in this week's survey had an average total of 0.44 discount and origination points. One year ago, the mortgage index stood at 4.46%; four weeks ago, it was 3.79%.

The benchmark 15-year fixed-rate mortgage rose to 3% from 2.99%. The benchmark 5/1 adjustable-rate mortgage was 2.91%, the same as last week.

Underwater Borrowers Finally Benefiting

Up until recently, the low rates were nothing more than a slap in the face to underwater borrowers because most lenders refused to refinance their mortgages. After the government revamped the Home Affordable Refinance Program to allow homeowners to refinance regardless of how much they owe, underwater homeowners were hopeful. But many lenders were slow in adapting to the new guidelines.

Finally, HARP seems to be helping underwater homeowners who were stuck with interest rates in the 6% or 7% range.

HARP refinances represented 33% of the total refinance volume in June, according to a Federal Housing Finance Agency report released this week. That's the highest percentage since HARP was rolled out in 2009.

"It's been great for homeowners, specifically because of the unlimited loan-to-value," says Dan Green, a loan officer at Waterstone Mortgage in Cincinnati.

The previous version of HARP capped refinances to 105% of a home's value. The cap was removed under HARP 2.0.

Fannie Mae and Freddie Mac refinanced 422,969 loans through June 2012. In all of 2011, only 400,024 homeowners refinanced through HARP.

"It happened a little slower than we thought, but it's definitely picking up," says Rob Nunziata, president of FBC Mortgage in Orlando, Fla.

Unlike with the first version of HARP, the revamped program is helping borrowers who really are severely underwater. In June, 62% of HARP refinances went to borrowers who owed more than 105% of their home's value. In the past, many borrowers participating in HARP were not underwater.

States that were hit the hardest by the foreclosure crisis, such as Nevada, Arizona and Florida, have seen a huge increase in demand for HARP loans, according to the FHFA. More than 80% of HARP refinances in those three states went to borrowers who owed more than 105% of their home's value.

"It has helped Florida tremendously," Nunziata says.

Will the HARP Refi Boom Last?

One reason the number of HARP refinances spiked in June was that, starting June 1, lenders were allowed to package and sell HARP loans as securities.

It's possible that the spike in HARP refinances is temporary, but mortgage professionals say the HARP refinance boom may last a few more months because of the low rates. As mortgage rates fall, lenders get more calls from underwater borrowers who want to refinance through HARP.

"The low rates are definitely prompting more calls," Nunziata says. "And people who have been successful refinancing through HARP are spreading the word. So some borrowers are saying, 'If my neighbor did it, maybe it's worth trying.'"

Qualifying for HARP

Only loans that were endorsed by Fannie or Freddie before June 1, 2009, qualify for HARP.

To refinance through HARP 2.0, borrowers must be current on their mortgages and have no late payments in the last six months. A late payment is defined as one that's more than 30 days overdue. Borrowers who have previously refinanced through HARP are not eligible.

HARP 2.0 expires in December 2013.

Will the Low Rates Last for HARP Refinancers?

Underwater borrowers who have not refinanced still have time to snag a low mortgage rate. Even though rates have been rising slightly in the last two weeks, they remain incredibly low, and it's unlikely they will spike before the elections.

"I still see them heading lower soon," Green says.

Still, borrowers who are able to refinance now shouldn't risk waiting, according to mortgage professionals.