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TH E M R EP O RT | 61 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SECONDARY MARKET THE LATEST Treasury Secretary, and the Fed must find before authorizing any emergency credit programs that "unusual and exigent circum- stances" exist in the company. Whereas the Fed's practice in emergency lending has always been to set the interest rate at a level that encourages borrowers to repay the credit as quickly as possible, the final rule (changed from its original proposal) requires the interest rate for emergency credit extended under Section 13(3) of Dodd-Frank to be set at a level that: • Is a premium to the market in normal circumstances; • Affords liquidity in unusual and exigent circumstances; • And encourages repayment along with discouraging the use of emergency credit under Dodd-Frank Section 13(3) as economic circumstances normalize. "The ability to engage in emergency lending through broad-based facilities to ensure liquidity in the financial system is a critical tool for responding to broad and unusual market stresses," Yellen said. "We have received helpful and constructive comments from many sources on a rule to implement these Dodd-Frank Act provisions. In response to these comments, we have made significant changes to the proposed rule to ensure that our rule will be applied in a manner that aligns with the intent of the Congress and the Dodd-Frank Act." Not everyone received the news of the final rule with enthusiasm. Some industry professionals were left to wonder why such a rule is necessary, since Dodd-Frank's original intent was to prevent "too big to fail"-type bailouts. "The Fed and other federal agencies have been telling us for quite some time that Dodd- Frank legislation was intended to eliminate the scenario of 'too big to fail,' but apparently it did not, or the Fed simply wouldn't see the need to introduce a final rule on emergency lending," Five Star President and CEO Ed Delgado said. "This latest rule will likely turn out to be much ado about nothing. While the clarification of 'broad-based lending' is designed to limit the types of bailouts the industry realized in 2008, at the same time, the Fed expanded the definition of 'insolvency' osten - sibly, given the circumstance, permitting lending to entities that may actually be insolvent, so I question how much of an impact this new rule will really have." U.S. Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, was also skeptical that the new rule would actually stop the gov - ernment from bailing out large financial firms. "Five years after Dodd-Frank became law, 'too big to fail' is unfortunately alive and well and this rule from the Federal Reserve doesn't change that," Hensarling said. "Indeed, by leaving the door wide open to future taxpayer-funded bail - outs, this final rule compounds the moral hazard problem that lies at the core of 'too big to fail.' Emergency lending should not mean discretionary lend - ing. It should not mean the unaccountable and unelected in Washington pick winners and losers. Vague rules and bureau- cratic discretion are not the answer—they are the problem. Instead, Congress can take a crucial step in preventing future bailouts by approving the House- passed FORM Act. The FORM Act places needed constraints on the Fed's emergency lending powers. It restricts emergency loans to financial institutions only and makes sure they are provided at a 'penalty rate' so banks are not improperly sub - sidized. The FORM Act injects greater accountability into the system by requiring not only a supermajority of Federal Reserve governors but also a supermajor - ity of district bank presidents to approve any emergency loan. By enacting these reforms, Congress can provide assurances to tax- payers that they will not have their pockets picked the next time the Fed decides to bail out a financial institution it decides is 'too big to fail.'" HARP Refinances Plunge in Q3 Although more than 3 million borrowers have tapped the program since its 2009 inception, many potential refinancers have yet to apply. T he total number of loans refinanced through the Home Affordable Refi - nance Program (HARP) took an unexpected turn down- ward in the third quarter. According to the Federal Housing Finance Agency (FHFA) third-quarter Refinance Report, a total of 25,824 HARP refinances were completed between July and September, down from the 31,561 refinances completed from April to June. In addition, HARP volume accounted for 5 percent of total refinance volume in the third quarter. The FHFA reported that over 3.3 million borrowers have refinanced through the HARP program, which was enacted in 2009 to help homeowners who are unable to refinance due to falling home values. The agency approximates that more than 429,000 borrowers nationwide have a financial incentive to use the HARP program but still have not. HARP refinances were highest in Florida, California, Illinois, Michigan, and Georgia, the FHFA stated. The report showed that Florida, Ohio, Illinois, Michigan, and Georgia are the top five states with the most "in the money" borrowers who are able to use HARP. These borrow - ers could save an average of $200 per month on mortgage payments. FHFA deems borrowers to be "in the money" if they meet HARP eligibility re - quirements, have a mortgage balance of $50,000 or more, have a remaining mortgage of no more than 10 years, and have an interest rate at least 1.5 percent higher than current market rates. "FHFA is continuing its efforts to reach HARP-eligible borrowers and has held town-hall-style events with local community leaders in Chicago, Atlanta, Detroit, Miami, Newark, and Phoenix to get the word out about HARP," the report stated. Those who refinance using HARP typically have a lower delinquency rate compared to those who are eligible for the program but choose not to use it, the FHFA said. Of all HARP refinances for underwater borrowers (those with a loan-to-value ratio greater than 105 per - cent), 28 percent resulted in 15- and 20-year mortgages. The FHFA noted that this method helps build equity for borrowers quicker than 30-year mortgages. The FHFA warned potential refinancers that "HARP will sunset on December 31, 2016."