Source: WSJ
Source: WSJ

Of all of the various government housing programs run by various federal agencies -- Federal Housing Administration, Federal Housing Finance Agency, Housing and Urban Development and, of course, Fannie Mae -- HARP is the most effective and efficient one out there. Odds are you have never even heard of the Home Affordable Refinance Program.

And that is a shame, because it is doing what it was designed to do: Help qualified homeowners refinance underwater homes and avoid foreclosure.

The Wall Street Journal’s Nick Timiraos wrote a terrific article on the subject: You probably missed it, as it was unfortunately buried on New Year’s Eve. (Timiraos's regular housing and mortgage columns in the Journal are incisive and free from the usual bias and politics that tend to accompany much of the housing coverage these days.)

A quick excerpt reveals some of the details:

The Home Affordable Refinance Program [HARP] stands out among the alphabet soup of initiatives rolled out to stem a wave of foreclosures: It is one that is finally living up to its ambitions.

Nearly 3 million homeowners, including at least 900,000 who owe more than their homes are worth, have been able to refinance their loans under the crisis-era program designed to reach borrowers with little or no equity in their homes. The majority of those loans were refinanced in 2012 and 2013, after the government revamped the program following a disappointing start.

I may have been one of only 19 or so people who read it that day. Our present discussion is an attempt to correct that unfortunate error.

As the nearby chart shows, after HARP was modified in 2011, refinances increased significantly. The total number of avoided foreclosures has passed 3 million.

What does the HARP 2.0 program actually do? It takes people who are underwater in a variety of expensive, or ill-advised or even predatory mortgages, and allows them to refinance their homes into traditional conforming 30-year fixed mortgages. A broad assortment of "interest-only" mortgages, 2/28 teaser rates, adjustable-rate interest-only loans are eligible under the program.

A Fannie Mae study noted that “borrowers who refinanced under HARP saved an average of $328 per monthly on their mortgage payments.”

Beyond those 3 million mortgagees already in the program, Goldman Sachs estimates that at least another half million borrowers are eligible to shave $150 per month or more off of their mortgage payments by refinancing through HARP before the program expires in 2015.

HAMP -- the Home Affordable Modification Program -- HARP and other mortgage mod programs were first introduced in 2009. According to an early 2011 analysis by ProPublica, 54.3 percent of 1,426,833 those mortgage modifications failed, as more than half fell back into foreclosure. The program was a disaster.

The program changed in late 2011, with the introduction of HARP 2.0. Timiraos explains: “The White House and the federal regulator for Fannie and Freddie revamped the program,” eliminating prior rules, such as a 125 percent LTV cap. They also added more protections for lenders.

The program has become so successful that HARP 3.0 is currently being discussed. Mel Watt, the new regulator overseeing Fannie Mae and Freddie Mac, wants to see HARP expanded. Those rule changes will be extended to avoid even more foreclosures. There is even talk of including loans not backed by Fannie and Freddie. (That will require congressional approval).

It may come as a surprise, but an intelligent and narrow regulatory approach can achieve a specific goal with positive effects on the economy.