Regulators have made key changes to a mortgage refinance program designed to help borrowers who owe more on their loans than their house is worth.
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The revamped version of HARP, the Home Affordable Refinance Program, is expected to help about 1.8 million borrowers take advantage of today's low mortgage rates, according to the Federal Housing Finance Agency. Under the revised version of HARP, borrowers will be able to refinance their mortgages regardless of how much their homes have fallen in value.
The program failed to meet regulators' expectations when it was launched in March 2009, partly because borrowers who were deeply underwater on their mortgages could not refinance, as HARP limited refinance loans to no more than 125% of the value of the home. The new HARP will not have a cap.
"I think this is going to make a huge difference in hard-hit markets like Florida," says Rob Nunziata of FBC Mortgage in Orlando, Fla. But it's too early to tell, he and others in the mortgage industry say.
If you are one of the many underwater homeowners seeking to take advantage of the HARP changes to grab a lower mortgage rate, there's no need to rush to apply to refinance yet. Lenders don't have the final, detailed guidelines on the HARP changes. The FHFA says it will provide the guidelines to lenders by Nov. 15. After that, it will vary by lender on how quickly they adopt and implement their changes. Chase says it will not adopt the rule removing the loan-to-value cap until the first quarter of 2012.
For now, here are the main changes in the program and how they may affect you:
- The 125% loan-to-value cap, which prevented borrowers from refinancing if the value of their homes had tumbled, has been removed.
- Borrowers will not need a new property appraisal if Fannie and Freddie have enough data in their automated valuation system to estimate the value of the property. This not only speeds up the refinancing process but also eliminates the appraisal fee.
- Certain fees associated with the risk of the mortgage loan will be reduced. Those fees will be eliminated for borrowers who refinance their mortgages into a shorter-term loan such as a 20-year mortgage or a 15-year mortgage.
- The program, which had been scheduled to expire in June 2012, has been extended through the end of 2013.
- Those who bought a house as their primary residence but now hold the property as an investment will be able to refinance through HARP at an additional cost.
- Lenders will be waived of certain liabilities on the original loans if they refinance those loans through HARP.
Waiver of Lender Liability
The changes related to the lender's liability on these loans are designed to entice lenders to embrace HARP. When lenders sell loans to Fannie and Freddie, they give promises (called "representations and warranties") that pledge that the loans were underwritten to meet Fannie and Freddie requirements. Fannie and Freddie have forced lenders to buy back many bad loans for alleged violations of reps and warranties. Under the revamped HARP, lenders would have a chance to be released from liability on the old loans.
"I don't see why they wouldn't go for it," Nunziata says.
"I think that's going to encourage lenders to do more HARP refis," says Ed Conarchy, a banker at Cherry Creek Mortgage Co. in Vernon Hills, Ill. "It all comes down to reps and warranty. It will be interesting to see how the details shake out by Nov. 15."
For the most part, many lenders refused to lend above 105% of the property's value even though the old guidelines permitted 125% loan-to-value mortgages. Mortgage experts say they hope lenders will become more flexible now that the cap has been lifted. If lenders embrace the program, underwater borrowers will line up to take advantage of the new HARP, Conarchy says.
Only mortgages sold to Fannie and Freddie on or before May 31, 2009, are eligible for refinance under HARP. Borrowers must be current on their loans and have no late payments in the last six months.
Mortgages that have lender-paid mortgage insurance cannot be refinanced through the program. Mortgages that have borrower-paid mortgage insurance may refinance, but borrowers must keep the same level of mortgage insurance they had on the previous loan.
Borrowers with second mortgages will still need the approval from their second lenders to refinance through HARP. That has been one of the biggest obstacles to those who have tried to use the program to get a lower rate.
Homeowners who have already refinanced through HARP are ineligible to refinance again.
"The new HARP program prevents homeowners from participating twice," says Dan Green, a loan officer at Waterstone Mortgage in Cincinnati. "The original HARP homeowners, therefore -- the ones from 2009 -- are now stuck with their 5.25% mortgage rates."
Green says he wishes FHFA would have made changes to allow those who bought homes in the last two years to refinance under the program.
"The new HARP program is closed to homeowners who have bought new homes over the last 24 months," he says. "That excludes a huge group on borrowers that could benefit from HARP."