Jessica Ullrich was hopeful when she learned of the Home Affordable Refinance Program, which she thought would allow her to refinance her mortgage at a lower interest rate even though she had no equity in her home.
But like thousands of other underwater homeowners who have tried to benefit from the program, her hopes turned into frustration when she stumbled upon one of HARP's many roadblocks.
Ullrich says that while trying to refinance, she discovered her lender had placed mortgage insurance on the loan that she got in 2006. Loans with lender-paid mortgage insurance do not qualify for a HARP refinance.
"It's very frustrating," says Ullrich, who has been trying to refinance her mortgage through HARP for seven months. Much of that time was spent trying to figure out whether her mortgage was insured, she says.
Two of the biggest impediments to refinancing under HARP are having mortgage insurance on the loan or having a second mortgage, says Ed Conarchy, a banker at Cherry Creek Mortgage Co. in Vernon Hills, Ill.
"They can make HARP practically impossible," he says.
If you have one or the other, brace for the worst and consider early in the game whether pursuing a HARP will be worth your time.
If you put less than 20 percent down on your home, your loan most likely has mortgage insurance. The key is to learn who is paying for it.
In the case of borrower-paid insurance, you can refinance through HARP as long as you pay for the same level of insurance on the new loan. That's in theory. In practice, you may need a little luck because many lenders have refused to refinance loans that carry mortgage insurance, regardless of what the guidelines allow. Your mortgage statements should show if you are paying for mortgage insurance.
It is lender-paid mortgage insurance that will make a refinance under HARP "impossible," says Jonathan Wren, an attorney in Charlottesville, Va., who has received several calls from angry homeowners who weren't able to refinance under HARP because they had lender-paid mortgage insurance.
HARP guidelines don't spell out that loans with lender-paid insurance can't be refinanced under the program, but the rules are written in a way that makes it impossible for the refinance to take place because the certificate of mortgage insurance can't be transferred to the new lender, says Wren.
Learn if You Have Lender-Paid Insurance
Finding out whether your home loan has lender-paid mortgage insurance isn't always as simple as it should be. Start with your closing documents, and if you don't find it there call or write a letter to your lender. Make sure you specify you are inquiring about lender-paid mortgage insurance. Often, the lender's representative will check your file and assume you don't have mortgage insurance because you are not paying for it.
If the lender isn't helpful in providing info, the Office of the Comptroller of the Currency, or OCC, which regulates national banks, might help you through its customer assistance group.
The agency would take over the inquiry and take the matter into its own hands once you file a complaint, says Kevin Mukri, a spokesman for the OCC.
"Don't sit there frustrated," Mukri says. "Call us and we'll help you." The number is (800)613-6743.
Ullrich, of Lowell, Mass., says it was after calling the OCC that her lender informed her about the mortgage insurance.
Fighting Back Lender-Paid Insurance
Wren recently represented a couple who was in a similar situation as Ullrich. Donald and Melissa Scott were unable to refinance through HARP because their existing loan had lender-paid insurance, according to a federal lawsuit the couple filed against their lender. In the suit, they claim they didn't find out the lender had placed insurance on their loan until they were working on the refinance.
Federal law requires lenders to disclose when they place insurance on a mortgage.
Wren says the case was settled before it went to trial, and declines to give details due to confidentiality agreements.
Assuming you are not facing the same problem as Wren's clients or Ullrich, your next main concern when getting a HARP refi is having a second mortgage.
In theory, it's possible to refinance your first mortgage under HARP when you have a second mortgage as long as the lender on that second mortgage gives you permission to refinance. That permission is known as subordination approval, or an agreement in which the second lender lets the new lender hold the first lien on the property after the refinance. Being the first lienholder gives a lender priority in getting paid in the event you default. Second lienholders would only get what's left after the main lender gets paid.
The chances of a second mortgage lender accepting subordination to allow you to refinance through HARP are low, although they have been improving slightly.
"You are at (the second lender's) mercy," Conarchy says. "It can take forever, and you have no control of the outcome."
And the only way to learn if your second mortgage lender will agree to the subordination is by going through the entire HARP refinance process. You can't submit the paperwork for the second lender's approval until late in the game when everything else is done, Conarchy says.
"If they come back and say 'no' you can't do anything," he says. "It's a dead deal."