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Soon Just About Any Underwater Borrower Will Be Able to Refinance


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.

13 thoughts on “Soon Just About Any Underwater Borrower Will Be Able to Refinance”

  1. Hmmm….What I read is there will be NO max LTV (they could do a DU Refi Plus with a max LTV of 105% for that matter), so you might want to check your sources. For skin in the game, my insider info will require a small upfront fee (percentage of the amount underwater?)….whichever it is, it will put $100 bills monthly in many homeowners pockets, and hopefully they’ll spend that money, somewhere.

  2. Per guidelines: If the borrower refinances under HARP and their new loan is an adjustable rate mortgage, their LTV may not be above 105%.

    Otherwise there is NO LTV limit.

  3. Great program that is way overdue and would have saved many millions of dollars for borrower and lenders both (avoiding many walk-aways). The $ 64,000 questions is,
    will lenders actually do this or once again kill it with overlays, as they do now. Washington can authorize lenders to do unlimited LTV refinances all they want – but you cannot force the banks to do them. Heck, if most banks will only do their own VA loans without an appraisal, you can imagine how quickly they will be stepping up to the plate to do 150 % to 200 % LTV refinances, regardless of having reps and warrants waived.
    Hopefully I’m wrong, but I don’t think so.

  4. So what about those of us whose loans are not backed by Fannie or Freddie? What help is there for us?

  5. There are a few options. You can contact your own lender/servicer and ask what they’ve got in the way of a proprietary loan modification. Or you can look into an FHA short refinance (it’s not for FHA loans, or loans back by Fannie and Freddie). You may also be able to pursue a traditional refinance now that values are back near recent peak levels. Finally, you can badger your local Congressman about launching HARP3 (MyRefi), though it’s probably unlikely to pass this late in the game.

  6. Speak with a lender or two to see if you qualify – they should be able to re-subordinate the second loan (equity loan) if you’re eligible for HARP otherwise.

  7. The lender that did this back in 2007, rolled this into the loan, instead of a making a second loan.
    My present mortgage company was ready to finalize the HARP but upon seeing that a Texas Home Equity loan was involved prior, refused to process.
    Upon contacting, lenders in Texas, I was infromed that nothing could be done as this refinance back in 2007 was in effect “our HARP”. This mortgage was financed at the time at 8.5%.
    I would like to get a lower rate with no cash out.
    Any suggestions would be appreciated.

  8. Looks like you might have to go with a traditional refinance if you’re not eligible for HARP, though you should make absolutely sure of that. However, if you don’t have sufficient equity for a traditional refinance, you might have issues qualifying for that type of loan as well. Probably best to speak with multiple brokers/banks/lenders to see what’s available for your unique situation.

  9. Colin, your list of requirments to qualify is missing one very important item. I have been told by 2 different lenders that though i meet all the other requirments the fact that we originally only put a 10% down payment ($20,000 on a $200,000 loan) and not a 20% down I now do not qualify because “mortgage insurance” was added to the loan. I guess my only option now is to beg my original lender for “extended amoritization” though since i have never been late on a payment in 10 years I see little reason why they would want to do anything other than to keep me paying the almost 7% interest rate for the next 20 years.

  10. Which lenders did you speak with? You should be able to refinance via HARP and get mortgage insurance transferred to the new loan. Might want to get a few more opinions.

  11. I was one of those people who got suckered into an OPTION ARM. My current bank has me under a Loan Modification program that increases the interest rate every year. This year it went up to 6.5% which increased my monthly payment by $400/month!

    I don’t qualify for anything. My LTV is not quite 80% so I don’t qualify for HARP. my Debt to Income ratio is too low for a refinance.
    What am I to do??

  12. Retha,

    Sorry to hear that. If your LTV is that low it’d be tough to qualify for help since you’re not underwater. Do you mean your DTI is too high for a refi? Perhaps shopping around a bit more to see if any brokers can help guide you in the right direction.

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