The wait is over for homeowners who want to refinance but owe more on their mortgages than their homes are worth. Starting next week, borrowers should find a wide range of lenders offering refinances through HARP 2.0, a program that allows borrowers to refinance regardless of how deeply underwater they are.

In places that were hit hardest by the housing downturn, homeowners have been waiting to refinance under HARP 2.0 for months, as it is their only chance to refinance at a lower rate.

"It is going to be a very big deal for places like Florida," says Rob Nunziata, president of FBC Mortgage, based in Orlando, Fla. "It will help a lot of responsible borrowers."

HARP 2.0, a revamped version of the Home Affordable Refinance Program, was announced five months ago. Until now, only a limited number of borrowers had access to it. Although a few national lenders started to offer HARP 2.0 refinances to their own customers earlier this year, most lenders had to wait for Fannie Mae and Freddie Mac to update their automated underwriting systems with the program's new rules. All updates should be completed by March 17.

As of Monday, borrowers should have plenty of options when shopping for a HARP 2.0 refinance.

"If you are turned down for HARP 2.0, it makes sense to talk to a different lender," says Dan Green, a loan officer at Waterstone Mortgage in Cincinnati.

Who's Eligible?

To qualify for a HARP 2.0 refinance, you must meet these requirements.

  • Your mortgage must have been sold to Fannie Mae or Freddie Mac before June 1, 2009.
  • You must be current on the mortgage and have no late payments in the last six months. A late payment is defined as one that's more than 30 days overdue.
  • You must not have more than one late payment in the past 12 months.
  • This must be your first refinance through HARP. If you have refinanced under an earlier version of HARP, then you do not qualify.

HARP 2.0 Might Succeed

Borrowers have grown frustrated as they hear announcements of numerous mortgage relief programs that do little to help them. But HARP 2.0 has the potential to succeed. Many of the obstacles borrowers faced in earlier versions of HARP were removed. The program is expected to help thousands of underwater borrowers lower their monthly house payments, mortgage experts say.

The previous version of the program did not allow refinances for borrowers who owed more than 125% of what their homes were worth. That requirement stood as a major obstacle to thousands of borrowers whose homes plunged in value. HARP 2.0 removes that cap.

HARP 2.0 releases the lender's liability on the original loan. In short, that's a key incentive to get lenders to embrace the program.

With the previous version of HARP, many homeowners complained that lenders wouldn't refinance more than 105% of a home's value, even though the program's cap was 125%. Some feared lenders would adopt a similar policy for HARP 2.0. But three of the largest lenders -- Bank of America, Chase and Wells Fargo -- say they have removed the cap and are willing to refinance according to the HARP 2.0 new guidelines.

Overlays

Lenders may add their own internal requirements, called "overlays," to the HARP 2.0 guidelines, Nunziata says. Although there is no minimum credit score to qualify for HARP 2.0, some lenders will require a minimum of 620, he says. Such a requirement is an overlay.

Lenders are required to verify income, employment and credit history under HARP 2.0. But it appears that many lenders will offer HARP 2.0 refis with limited overlays, especially on primary homes, Nunziata says.

"We'll have no overlays," says Ted Iturriria, vice president of loan production at AimLoan.com in San Diego.

Increased Demand Means Potential Delays

Bank of America, Wells and Chase say they have had a large volume of applications from borrowers for the HARP 2.0 program since they made it available to their existing customers.

Having been inundated with inquiries from borrowers, smaller lenders and brokers across the country have gathered applications and documents so they can process the refinances as soon as the system becomes available to them this weekend.

As lenders become overwhelmed with the volume of applications, borrowers should be prepared for delays, Green says. "Talk to your loan officer and get their feel for what's an appropriate length of time" for closing, he says. Lock your rate accordingly.

Second Mortgages Not as Big of an Obstacle

If you have a second mortgage, you're more likely to encounter delays. That's because the second mortgage lender has to sign off on the refinance, agreeing to subordinate the loan to the lender who refinances the first mortgage.

But the good news is, lenders will be more willing to sign off on HARP 2.0 refinances than they were with the previous version of HARP, industry experts say.

"If you have to subordinate, you'll have some delays, maybe 30 to 45 days, but I don't think it will hold anybody back," says Brett Sinnott, director of secondary marketing at CMG Mortgage in San Ramon, Calif.