The Federal Housing Finance Agency (FHFA) released details of a newly revamped Home Affordable Refinance Program (HARP) today, with the main feature being a lack of a loan-to-value (LTV) limit.
Previously, the max LTV accepted under the program was 125 percent, meaning those in need of the most help were essentially out of luck.
With this change, even the deepest underwater borrower will be able to refinance their mortgage to take advantage of today’s record low mortgage rates. It’s a huge deal. Of course, there are some limitations to take note of as well.
In order to qualify for the new HARP, you must meet the following requirements:
– The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
– The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
– The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
– The current loan-to-value (LTV) ratio must be greater than 80%.
– The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.
Assuming you meet these guidelines, you can request a HARP refinance from either your existing mortgage lender or via another bank offering the program, your choice.
Just keep in mind that if you’re refinancing from a fixed-rate mortgage into an adjustable-rate mortgage (who knows why), the max LTV is just 105 percent. I doubt many people would go this route, especially with the limitation in place.
To encourage lender participation, certain seller/loan servicer representations and warranties will be waived. This will allow banks to make HARP loans with less worries.
And where reliable AVMs (automated valuation model) are available, the need for a new property appraisal will be eliminated to streamline the program even more.
Shorter Term Mortgages Urged via HARP
Interestingly, the FHFA is also promoting the use of shorter-term mortgages both to help borrowers pay their mortgages down quicker and to protect the taxpayer, who is now on the hook for Fannie and Freddie’s dealings.
They believe paying down the mortgage to an above-water position will give borrowers more options in the future, such as selling or refinancing, without breaking the bank, thanks to the spread between mortgage rates several years ago and today.
In other words, because mortgage rates are so much lower than they were several years ago, it may be possible to make a similar monthly payment while on a payoff schedule that is twice as fast.
Additionally, because shorter-term mortgages will reduce credit risk to the government-sponsored entities, there will be no added risked-based fees for borrowers who choose shorter terms.
You just have to wonder how many severely underwater borrowers will want to increase their monthly mortgage payments, let alone dump more money into their now “worthless” homes.
But over time, the decision could reap big rewards if home prices snap back and ascend to new heights. These borrowers would then be in really good shape.
If you’re interested in the newly revised HARP, which you probably should be if you’ve got an astronomical mortgage rate and no home equity, the FHFA expects the program, dubbed “HARP Phase II,” to be up and running by early December or the first quarter of 2012.
Lastly, HARP has been extended until December 31, 2013, and the FHFA estimates that HARP refinances may roughly double from their current level of about 900,000 as a result of this positive change. This is definitely going to be big!
Read more: 30-year mortgage vs. 15-year mortgage.