A U.S. government effort to help struggling homeowners refinance into cheaper loans gained traction last year, helped by rising home prices and changes to the program that made more borrowers eligible for relief, a report released on Wednesday showed.

Nearly 1.1. million refinances were completed under the Home Affordable Refinance Program, or HARP, in 2012, more than double the year-earlier number, the report from the Federal Housing Finance Agency said.

HARP helps borrowers with loans backed by Fannie Mae and Freddie Mac – who owe more than their homes are worth – cut loan payments by refinancing into lower-cost mortgages.

It has now been used by about 2.2 million borrowers since it started in 2009, according to the FHFA, which regulates both Fannie Mae and Freddie Mac. About 438,200 HARP refinancings were done in 2011.

The U.S. housing market’s recovery has been a significant driver in the program’s ability to help more borrowers. Prices for new homes have risen every month since February 2012, boosted by a limited inventory of properties on the market and historically low interest rates.

That, in turn, has given borrowers a stronger incentive to try to stay in their homes.

At the same time, the FHFA took steps in 2011 to widen eligibility for borrowers who had been locked out of the program because they owed too much on their loans relative to the value of their homes. It also lowered some fees and waived certain underwriting requirements to spur lender participation.

“By working with Fannie Mae and Freddie Mac to enhance the program, we’ve increased access to HARP, especially for borrowers who are severely underwater,” said Meg Burns, senior associate director for housing and regulatory policy at the FHFA. She said the new changes have “proven successful.”

CALIFORNIA TUNES IN TO HARP

While the revisions to HARP have resulted in a growing number of borrowers entering the program, there is mixed reaction on how much further refinancing will expand.

“HARP is working primarily because house prices have started to rally. If house prices were to stay depressed, we wouldn’t see this activity,” said Anthony Sanders, a finance professor at George Mason University and a former director of mortgage-bond research at Deutsche Bank AG. “Is HARP really helping? The answer is yes, but in a very small way.”

Sanders said HARP was intended to speed the housing market’s recovery, but was responsible for only a small part of the rebound and was dependent on home price appreciation.

Among the states with the most HARP activity since the program’s inception were California, Florida, Illinois, Michigan and Arizona, where borrowers are often paying above-market interest rates and are more deeply underwater.

HARP volume represented 22 percent of total refinance volume in the fourth quarter of 2012, the report noted.

“That’s a significant piece of the market and is really meaningful,” said Erin Lantz, the director of the Zillow Mortgage Marketplace, which has an online tool that lets homeowners see if they qualify for HARP refinancings and helps them find lenders.

“I’m not surprised to see the uptick after the program was retooled and many of the barriers were removed,” Lantz said.

HARP, which is scheduled to expire at the end of this year, is viewed as one of the more successful anti-foreclosure programs launched by the government in the wake of the housing market’s collapse.

The Obama administration’s main mortgage assistance effort, the Home Affordable Modification Program, has resulted in permanent loan modifications for more than 1.1 million homeowners. When it was unveiled in early 2009, the administration predicted it would reach as many as 4 million.

(Reuters)