Is the New HARP Music to Your Ears?

The federal government has improved and extended the Home Affordable Refinance Program (HARP). The latest version, known as HARP 2.0, is now available through the end of 2013. Without the extension, the program would have expired on June 30, 2012.

Background: HARP is intended mainly to help out homeowners with Fannie Mae- or Freddie Mac-owned loans who want to refinance their homes. It enables you to obtain more favorable loan terms when you’re facing financial difficulties and the value of your home is “underwater.” In other words, you may qualify for refinancing even if you owe more than the current value of your home.

The program was initially introduced in 2009. Now the following changes under HARP 2.0 may benefit homeowners.

No LTV cap: In the 1.0 version of HARP, a homeowner with a current loan-to-value (LTV) ratio above 80% could refinance up to 125% of the current value of a loan sold to Fannie Mae or Freddie Mac before June 1, 2009. Now lenders are authorized to make unlimited LTV mortgages under HARP 2.0. Also, new guidelines have removed certain related requirements, encouraging more lenders and borrowers to participate in the program.

Limited liability for lenders: Under the revamped guidelines, lenders are no longer required to buy back a non-performing loan. Due to this change, lenders will likely be more inclined to approve refinancing for individuals with underwater homes.

Lender fees: Lenders have previously been charged high fees by Fannie Mae and Freddie Mac for high LTV loans. As a result, there’s a greater incentive to participate, which can translate into lower costs for homeowners.

Financial requirements: With the new HARP 2.0, monthly payments will not be more than 20% greater than your current payment. There are no specific credit and income requirements. A high debt-to-income ratio will no longer disqualify a homeowner. If family status has changed, only proof of income will be required.

Property appraisals: The revised program eliminates the need for a new property appraisal if Fannie Mae or Freddie Mac has provided a reliable automated valuation estimate.

Warranties: Certain other representations and warranties relating to loans owned or guaranteed by Fannie Mae and Freddie Mac have been waived.

Caveat:The LTV cap for borrowers refinancing into adjustable rate mortgages (also known as ARMs) remains at 105%. This requirement was also part of HARP 1.0.

There is already some talk about HARP 3.0. If the program remains successful, it will likely be expanded. Stay tuned for more developments.

Singing Along with HARP 2.0

To qualify for the new program, you must meet the following requirements:

  • Your mortgage must have been sold to Fannie Mae or Freddie Mac before June 1, 2009.
  • You must be up-to-date on your payments and have no late payments in the past six months. A “late payment” is one that is more than 30 days overdue.
  • You can have no more than one late payment during the past 12 months.
  • You must owe at least 80% of your home’s current value.
  • This must be your first refinancing through any version of HARP.