The second
iteration of the Home
Affordable Refinance Program, or HARP 2.0, was
released on March 17, 2012. The adopted changes by Freddie
Mac and Fannie May to HARP eliminate the more troublesome
sticking points for homeowners whose mortgage balances exceed
their property’s value. As in HARP 1.0, eligibility
restrictions apply:
Home loans must be backed by the government-sponsored enterprises
(GSEs) Fannie Mae or Freddie Mac. Check with Fannie
Mae and Freddie
Mac before applying.
Mortgages
must have been sold to GSEs on or before May 31, 2009.
Loan-to-value
(LTV) ratio must exceed 80 percent
Mortgages
must be current, with no 30-day late payments in the last
six months and no more than one in the last 7 months to
one year prior to applying.
Second mortgages
will be subordinated to the new first mortgage. However,with
Freddie Mac loans, if the first loan’s balance does
not exceed 80 percent of the home’s current value,
and the total of the first and second mortgage balances
doesn’t exceed 105 percent of the home’s current
value, both mortgages can be consolidated into the new HARP
refinance. Mortgages that were refinanced under the old
HARP program are ineligible under the new program. The program
is set to expire December 31, 2013.
New HARP:
What’s Different?
One of the biggest roadblocks to the old HARP refinancing
was the fact that many homeowners were required to work
with their current lenders, and these lenders weren’t
necessarily motivated to reduce rates on loans that were
being paid as agreed. However, new HARP guidelines open
up the program to many more borrowers and with far greater
opportunities to compare their options with multiple lenders
who are participating in the HARP program:
- Rentals
and vacation homes can qualify. Additional fees apply.
- There
is no limit on negative equity if you refinance into a
fixed-rate loan.
- If you
refinance into an adjustable-rate mortgage, your maximum
LTV is 105 percent.
- Borrowers
are not required to work with their current lender.
- Borrowers
with lender-paid mortgage insurance may be eligible.
- No increase
in mortgage insurance coverage is required; mortgage insurance
coverage must be transferred to the new lender.
- As long
as the new payment doesn’t increase by more than
20 percent, no property appraisal or income verification
is needed.
- GSE
foreclosure and bankruptcy restrictions are lifted.
- Loan
pricing adjustments are capped at .75 percent for loans
with terms exceeding 20 years, and zero for loans with
terms of 20 years or less.
Potential
Pitfalls
Every one of the government’s Making Home Affordable
programs has worked differently in practice than it was
expected to in theory, and mortgage lenders have tended
to apply the GSE guidelines more conservatively than required
HARP 2.0 appears to be evolving as well, and early applications
have unearthed the following issues:
- Even
though there are minimal loan pricing adjustments at the
GSE end, lenders still have some uncertainty about investors’
willingness to purchase HARP 2.0 loans, and have priced
that uncertainty into their refinance rates. It’s
just as important to rate shop for HARP loans as it is
for other mortgages.
- While
there is no minimum credit score or maximum loan-to-value
at the GSE level, many lenders are imposing their own
more restrictive guidelines. It may be difficult for those
with condominiums in the Sun Belt, for example, to refinance
them at LTVs exceeding 105 percent.
- Many
of the country’s largest lenders, including Bank
of America and Chase, are only willing to offer HARP refinancing
on loans that they currently service. If you aren’t
currently with one of these lenders, you may have to look
harder to find a HARP 2.0 refinance.
The HARP
program at one lender may not look at all like HARP at another.
To secure your best deal on a HARP refi, the odds are you’ll
have to get several refinance quotes from participating
lenders.
Sources:
efanniemae.com, Mortgage News Daily. Chase Bank, Bloomberg
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