How Will the Federal Home Affordable Refinance Program Help Homeowners?

The mortgage industry is buzzing about HARP 2, the revamped federal Home Affordable Refinance Program. Some are predicting it will trigger the biggest refi boom of the decade. But will it really help homeowners whose loans are deeply underwater refinance into low-rate loans? Or is this more hype about a program that will help far fewer homeowners than promised? Guidelines released recently by one of the nation's largest mortgage lenders raises questions about where the program is headed.

The expanded Home Affordable Refinance Program (HARP 2) is designed to make it easier for homeowners who owe much more than their homes are worth to refinance their loans into low-rate, fixed-rate loans. Under the original HARP, a first mortgage could not be refinanced if the new loan amount would exceed 125% of the home's value (125% LTV). HARP 2 does away with that cap, with the goal of allowing homeowners who are seriously upside down on their loans to refinance.

That means this program potentially could help a lot of borrowers. According to CoreLogic research:

Of the 11.1 million upside-down borrowers, there were 6.7 million first liens without home equity loans and an average mortgage balance of $219,000 at the end of 2011. This group was underwater by an average of $51,000 or an LTV ratio of 130 percent. The remaining 4.4 million upside-down borrowers had both first and second liens and were upside down by an average of average of $84,000 or a combined LTV of 138 percent…The removal of the 125 percent LTV cap via HARP 2.0 means that over 22 million borrowers are currently eligible for HARP 2.0 when just considering LTV alone.

There are some very basic requirements all loans must meet. Only homeowners whose loans were sold to Fannie Mae or Freddie Mac before June 1, 2009 are eligible. And borrowers must be current on their mortgage, with no more than one 30-day late payment in the last year, and none in the most recent six months. Beyond that, individual lenders are free to add their own requirements (called "overlays") to these loans. That's where trouble may be brewing.

Wells Fargo, one of the nation's largest mortgage servicers and a major participant in the original HARP, has released its guidelines for HARP 2 loans, and they are more restrictive than some in the industry were expecting. Wells Fargo will not refinance mortgages for homeowners whose loans they do not currently service if the amount of the primary mortgage is greater than 105% of the home's value, and the combined loan-to-value (the first mortgage plus any second mortgage or home equity line of credit) is greater than 110 percent.

"Those guidelines are worse than the original HARP," says Joe Kelly, founder of YouCanRefi.com, referring to the caps for non-Wells Fargo customers. His firm has specialized in HARP loans since the original program launched and, like many mortgage firms, and he says he has high hopes for the HARP 2 program.

This news is significant because of the major role that Wells Fargo plays in the mortgage industry. Wells Fargo originated 31% of all residential mortgages in the fourth quarter of 2011, explains Guy Cecala, publisher of Inside Mortgage Finance. He adds that they are also "one of the top refinance mortgage producers in the country. Last year they accounted for 24.4% of all refinance mortgages made. That, of course, included a lot more loans than just the ones they service themselves."

That also means that many mortgage firms may have been counting on being able to help their clients refinance high LTV loans by putting them into HARP 2 loans through Wells Fargo. (There are numerous lenders across the country who broker for, or sell loans to Wells Fargo.) But those hopes may be dashed by this latest news. On the other hand, homeowners whose loans are currently serviced by Wells Fargo may have reason to cheer. The guidelines for refinancing their loans are very generous, with few limits on LTVs or minimum credit scores.

"It basically means I can help someone whose loan is with Wells and has, say, a 180% LTV on his condo in Florida with a 600 credit score," says Kelly.

Will HARP 2 Live Up to the Hype?

Other lenders who have released their guidelines are focusing on offering the program to their own customers. Last week, a Bank of America spokesperson was quoted in a Bloomberg article as saying the bank "is fully committed to providing our customers with the benefits of refinancing through our continued implementation of HARP 2." (Italics added.) Mark Rodgers, director of public affairs for Citi declined to provide specifics, but said that, "Although the program is relatively new, we are seeing success helping borrowers to lower their mortgage payments."

So it's not all bad news. After all, even if the major servicers extend HARP 2 just to their own customers, the program could still help a significant number of homeowners. According to Cecala, Wells Fargo services 17.7% of existing residential mortgage loans, followed by Bank of America (17.2%), Chase (11.4%), Citi (5.2%) and Ally Financial (3.7%). Together, those top 5 lenders service just over half of current residential mortgages. But what about borrowers whose servicers decide not to participate in HARP 2, or who set significant restrictions on the loans they will refinance? A lender may agree to participate in HARP 2, for example, but then set low caps on loan-to-value ratios, the way Wells Fargo has for non-customers

"One of the things we saw under HARP 1 most of the refinance activity was at 105% (LTV) and that didn't help that much," observes Cecala. "What's going to make it better under HARP 2?" Another problem: borrowers may be stuck with their current servicers, regardless of how good (or not so good) they are at closing their loans. One of the goals of HARP 2 is to encourage competition, explains Cecala, and if lenders limit the program to their existing customers, that won't happen.

"Somewhere in the neighborhood of 90% of borrowers refinance with someone (other than their current mortgage lender). You go with whomever is offering the best loan and there is some competition, but that's not the case with the HARP program," he says.

Still, Cecala remains "cautiously optimistic" about the program. So does Kelly, who points out that some lenders have yet to release guidelines. Indeed, as I was finalizing this story, Kelly told me he received a flyer from a lender promoting HARP 2 loans with no caps on the loan-to-value ratio. "Not everyone is following (Well Fargo's) lead," he notes.

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HARP Guidelines

HARP Eligibility Guidelines

The Home Affordable Refinance Program (HARP), launched jointly by the Federal Housing Finance Agency (FHFA) and the US Treasury Department set certain new eligibility guidelines for California homeowners who had bought houses on loans and were subsequently unable to be eligible for refinancing because of downward spiraling home values. This was a major hindrance in refinancing their present mortgages with lower interest rates and/or having a more valuable mortgaged product.

With changes announced in HARP eligibility guidelines (now called HARP 2.0), more and more home owners will now be eligible for HARP.

The elimination of the 125% loan-to-value for fixed rate Freddie Mac or Fannie Mae mortgages and the exclusion of appraisals for new properties where there is already a reliable Automated Valuation Model or AVM are two such major changes that will make more people eligible.

Risk-based fees that discouraged borrowers from taking short-term mortgages have been eliminated and this will help those with loans valued at more than the value of their house.

This will reduce not only interest rates but also lower monthly installment payments, creating equity faster.

The goal of the newly modified HARP 2.0 Program is to help stabilize the real estate market and encourage more people to buy homes on loans.

HARP Eligibility/Non-Eligibility Basic Guidelines

1. Your loan must be backed by Freddie Mac or Fannie Mae

2. Freddie or Fannie should have bought your mortgage prior to June 1st, 2009.

3. Borrowers must be current on their mortgage for the last six months, and have no more than  one late payment over the past year.

4. The mortgage must not have already been refinanced through HARP in the past, unless it  happens to be a Fannie Mae loan that underwent a HARP refinance between March and May 2009.

5. Must Not be a USDA, FHA or Jumbo Mortgage

6. If the California homeowner refinances into a fixed-rate mortgage, no Loan-To-Value (LTV) limit  applies. However, if the new loan is an adjustable-rate mortgage, the borrower’s LTV cannot exceed  105%. Western Pacific Home Loans

The New HARP

What is the Home Affordable Refinance Program (HARP)?

Announced in March 2009, HARP is a federal government program designed to help 5 million underwater or near-underwater homeowners refinance into a fixed loan with a lower monthly payment. However, as of Aug. 31, only 894,000 borrowers have refinanced through HARP. On Oct. 24, 2011, President Obama announced an overhaul to the HARP program with the intent of reaching more underwater homeowners. The expanded HARP program - also referred to as HARP 2.0 - will take effect on December 1, 2011 for borrowers with a loan-to-value ratio of less than 125 percent and in the first quarter of 2012 for borrowers with a loan-to-value ratio of greater than 125 percent.

Why didn't the original version of the HARP program work?

The original version of HARP had many roadblocks that made it difficult for homeowners to refinance. For example, the program only assisted those with mortgages with a loan-to-value ratio between 80 percent and 125 percent, but in many hard-hit housing markets across the country, homes have lost more than 50 percent in value making those homeowners ineligible for the program. Read more about why so few homeowners have been helped by the program.

How will the HARP program change?

Some of the major changes to the HARP program include:

• No underwater limits
  Borrowers will now be able to refinance regardless of how far their homes have fallen in value. Previous loan-to-value limits were set at 125 percent.
• Eliminating appraisals and underwriting
  Most homeowners will not have to get an appraisal or have their loan underwritten, making their refinance process smoother and faster.
• Modified fees
  Certain risk-based fees for borrowers who refi into shorter-term loans will either be eliminated or modified.
• Extended deadline
  The end date to get a HARP refinance has been extended to Dec. 31, 2013.

How do I find out who holds my mortgage?

To be eligible for the HARP program, your mortgage must be held by either Fannie Mae or Freddie Mac. To "look up" your mortgage, check Fannie Mae. If you can't find your mortgage there, check Freddie Mac.

How do I know if I am eligible for HARP?

You can find out if you are eligible for HARP by using the HARP Eligibility Calculator 

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An Indepth Guide to HARP 2.0

HARP 2.0

You may have heard that there were some changes made recently to the government's Home Affordable Refinance Program (HARP). Known as HARP 2.0, the new rules are designed to make it easier for certain homeowners with little or no equity to refinance their mortgages.

Unfortunately, there's still a lot of confusion about the changes and how they could benefit homeowners who haven't been able to refinance their mortgages. So here's a summary of some of the main elements of the program and key changes under HARP 2.0.

The Basics

What is HARP?

HARP is the Home Affordable Refinance Program, part of the government's Making Home Affordable Program for at-risk homeowners. It's designed for homeowners who are current on their mortgage payments but haven't been able to refinance to a lower interest rate because they owe too much on their mortgage. In many cases, they are said to be underwater on their mortgage -- owe more than the property is worth.

Who can qualify?

First of all, you have to have a mortgage backed by Fannie Mae or Freddie Mac. There's a pretty good chance you do, unless you have an FHA or VA loan, or your home was costly enough to require a jumbo mortgage -- before the crash, Fannie and Freddie guaranteed the great majority of middle-class mortgages in this country.

Both Fannie Mae and Freddie Mac offer easy tools on their web sites to find out if they hold your mortgage -- visit www.fanniemae.com/loanlookup or www.freddiemac.com/mymortgage.

You also have to be current on your mortgage payments - no more than one late payment over the past year and none in the last six months. Your mortgage must have been acquired by Fannie or Freddie prior to May 31, 2009 and must not have been previously refinanced through HARP (standard refinances are ok).

Do you have to be underwater on your mortgage?

HARP is not strictly limited to underwater mortgages. In fact, many of the home loans refinanced under HARP have been mortgages where borrowers had some equity, but not enough to qualify for a conventional refinance. HARP refinances are allowed on mortgages with a greater than 80 percent loan-to-value ratio -- i.e., less than 20 percent equity -- as well as on underwater mortgages where the borrower owes more than the property is worth.

What's New?

125 percent cap lifted

Perhaps the biggest change in HARP 2.0 is that there is no longer a limit on how far underwater your mortgage can be and still be able to refinance. Previously, there was a 125 percent loan-to-value limit on mortgages refinanced through HARP -- that is, the balance owed on your mortgage could be no more than 25 percent greater than the value of your home.

Under the new rules, it doesn't matter how much your home has fallen in value, you can still qualify to refinance your mortgage.

Automatic appraisals

The new rules for the program allow lenders to use automated systems to produce an estimated value for your home, rather than requiring an actual appraisal. This offers several benefits for you, the borrower. First, an automated appraisal means you don't have to pay for having an actual appraisal performed, which can save you several hundred dollars. It's also faster. 

It also makes it easier to qualify, since with the loan-to-value cap lifted, they're not worried about getting a precise estimate of your home value. A lender may still require an actual appraisal in some situations, however.

Fees reduced

Certain risk-based fees, called loan-level pricing adjustments, have been eliminated under HARP 2.0 if you refinance into a mortgage of 20 years or less. Since those fees could previously add up to an up-front charge of 2 percent of your loan amount, that's a significant savings. This was done to encourage borrowers to refinance into shorter-term loans and get back into positive equity more quickly. On mortgages refinanced into 30-year terms, those fees have been capped at 0.75 percent, or $750 per $100,000 of the mortgage. You may be able to roll the fee into your loan or have it eliminated in return for paying a slightly higher interest rate.

Lender liability eased

One of the significant changes in HARP 2.0 is that lenders who refinance a mortgage will not be held accountable if the original lender didn't properly qualify the borrower for the old mortgage.

This may not seem important to you, as a borrower, but it makes lenders much more willing to refinance underwater mortgages originated by other lenders. Many of the mortgages that are now underwater were originated during the housing bubble, when sloppy underwriting practices were common, so this is a particular concern for lenders.

Restrictions on condominiums lifted

Under the old guidelines, you couldn't get a HARP refinance on a condominium if more than 10 percent of the units were held by a single owner, or if more than 20 percent of the units were behind on their association fees.

With large numbers of unsold and foreclosed (bank-owned) properties on the market, this blocked many condominium owners from qualifying for HARP. Now, that restriction has been completely removed, opening up the program to many underwater condo owners.

No income verification required

Another change is that you no longer have to meet any income requirements to qualify for a HARP 2.0 refinance, unless your payments are increasing by more than 20 percent a month due to shortening the term of the loan. You do have to be current on your mortgage payments, as explained above.

When did this happen?

The new HARP 2.0 guidelines went into effect in late 2011. However, some of the provisions were tied to the development of automated underwriting software needed to implement them. That software became available in March 2012, so those provisions didn't really start to kick in until then. Prior to that, lenders had to manually underwrite HARP 2.0 refinances, which was also a slower process.

Other

The following are things that haven't changed in HARP 2.0, but help explain other aspects of the program.

Not required to refinance with the same lender

Under HARP, you're not required to refinance your mortgage with the same lender who's currently servicing it. However, many lenders, particularly the larger banks, are only doing HARP 2.0 refinances for their current customers. For this reason, when seeking a HARP refinance it's best to start out by contacting your current mortgage servicer.

Smaller lenders seem to be more willing than some of the larger ones to do HARP refinances on mortgages they did not originate. Beyond that, mortgage brokers, who work with multiple lenders, may be useful in helping you identify other lenders who may be willing to take on your loan.

Lenders may have their own rules

The guidelines described above describe the basic rules for HARP 2.0 as set forth by Fannie Mae and Freddie Mac. Individual lenders, however, may have their own rules, known as overlays, for the program.

For example, HARP has no minimum credit score requirement, but many lenders will require that borrowers have a score of at least 620 before considering them for a HARP refinance.

Lenders may also impose loan-to-value restrictions on mortgages they will refinance, even though Fannie and Freddie have no such limit. Some lenders are imposing a 125 percent loan-to-value limit for mortgages they will refinance under HARP 2.0; however, many lenders previously imposed a limit of 105 percent under the program, so even this is a more generous allowance.

Can't combine primary and second mortgages

One thing you cannot do under HARP is combine both a primary and second mortgage (such as a home equity loan or line of credit) into a single new mortgage by refinancing. You may be able to refinance your primary mortgage through HARP, but any second mortgages will have to be resubordinated (allow the refinanced mortgage to be the primary one and get paid first in the event of default) in order to do so. Fortunately, lenders are becoming increasingly willing to subordinate second mortgages in order to facilitate HARP refinances.

I

nvestment property, second homes ok

You can use the HARP program to refinance an underwater or low-equity mortgage on either a second home or an investment property of 1-4 units, as well as on your primary residence.

About mortgage insurance

Depending on your lender and insurer, private mortgage insurance (PMI) may or may not be an obstacle to refinancing through HARP. The program rules stipulate that if your current mortgage has mortgage insurance, the new loan must have it as well. Many lenders and insurers will simply allow you to transfer your current policy to the new loan.

Some lenders and insurers may not be so willing, however. This may be the case if your original mortgage insurer is now defunct and the account is now being handled by another company that acquired the accounts.

Some lenders are also resistant to doing HARP refinances on mortgages with lender-paid mortgage insurance (LPMI); others may allow you to go up to only a certain loan-to-value limit. Again, remember that you can shop around for other lenders who will do a HARP refinance for you.

Why only Fannie and Freddie mortgages?

The reason HARP is limited to Fannie and Freddie loans is because both companies fell in government receivership during the market crash, so the government can tell them what rules to follow when refinancing mortgages. Since HARP is run through Fannie and Freddie, it can't be used to refinance mortgages backed by strictly private lenders.

The FHA, VA and USDA -- all government programs -- have their own programs for refinancing underwater and low-equity mortgages guaranteed by them.

Expiration date

HARP is presently set to expire after Dec. 31, 2013. For more information, visit the Fannie Mae or Freddie Mac web sites at www.Fanniemae.com or www.Freddiemac.com. 

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HARP 2.0

This blog is for the purpose of informing potential HARP customers about the benefits they can recieve through this program. In order for customers to make an informed decision about the HARP program, it is important to understand the basics. This blog will hopefully guide you in your descision.

New Updates to HARP

Below are some updates to the Home Affordable Refinance Program – HARP 2.0
Some of the key features of the program include:

• HARP is now extended through 2014.
• In order to be eligible, loans must have been purchased by Fannie Mae or Freddie Mac by May 31, 2009.
• Unlimited Loan-to-Value ratios (currently, there is a ceiling up to 125% of your home’s value)
• Waiving the fees for borrowers that choose to take on shorter term mortgages during the refinance (some people do wish to go from a 30 Year Fixed to a 20 Year Fixed, for instance)
• To qualify, borrowers must be current on their mortgage for the last six months, and have no more than one late payment over the past year.
• New appraisals may not be needed to qualify.

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