Look Out for Upcoming Changes to the HARP Program
HARP allows homeowners facing difficulties refinancing their mortgage
through conventional methods to apply for a refinance of their mortgage. A
homeowner that is current with their monthly payments but unable to refinance
due to a drop in the value is the typical prime candidate for the HARP program.
The ultimate goal is to allow a homeowner to do a mortgage refinance for a
lower interest rate and overall monthly payment.Â Here are the general eligibility guidelines
- There is no
loan-to-value cap in the new HARP, for fixed-rate loans. This is the most
significant change of HARP 2.0. Under previous versions of HARP, the LTV
could not exceed 125%.
- The loan on your property is
owned or guaranteed by Fannie Mae or Freddie Mac. Determine if you have a
Fannie Mae or Freddie Mac loan by going online (check Fannie;
Freddie) or by calling 800-7FANNIE or 800-FREDDIE (8 am to 8 pm ET).
- At the time you apply, you
are current on your mortgage payments. You can have one 30-day late
payment in the past 12 months, but none within the past 6 months.
- You have a reasonable
ability to pay the new mortgage payments. Editorâ€™s note:
Fannie Mae removed the "reasonable ability to pay" clause.Â
- The refinance improves the
long-term affordability or stability of your loan.
HARP Changes for Lenders and Effects on Borrowers
The following is a summary of key changes found in HARP 2.0.Â Some key underwriting details are not yet
announced, and are expected to be released before March 2012.
Whatâ€™s new: A key provision of the new
HARP is that it limits lenders' liability in cases of loan default.
Essentially, Fannie and Freddie will not force the lender to buy back a
Effect on the borrower: This change should
greatly expand HARP's reach. Lenders will be much more eager to offer HARP
loans, where they were previously reluctant. With more lenders participating,
you will have an easier time getting a HARP mortgage.
Lender Fees Dropped
Whatâ€™s new: Fees that Fannie and Freddie
charge lenders for high LTV loans are being cut.
Effect on the borrower: The reduced fees are
passed on to you, making your loan cheaper. If you are financing to a 15-year
or 20-year loan, the fees are cut even further.
Credit Score and Income Requirements Relaxed
Whatâ€™s new: As long as your new HARP
monthly payment is not more than 20% greater than your current payment,
specific credit and income guidelines do not apply. The lender will have to
determine that the borrower is an â€œacceptable credit riskâ€ (and what that means
is yet to be determined).
Effect on the borrower: A low credit score
or high DTI is not enough to automatically disqualify a borrower. Also, if your
family is now a one-income family when it was a two-income family on the
original loan, you only have to show proof of one income, as opposed to
conventional loans where all borrowers listed on the application must document
Underwriting Requirements Relaxed
Whatâ€™s new No. 1: Mortgage Payment
History: A HARP lender can approve a loan that has one late mortgage
payment in past 12 months as long as it did not take place in the last six
Effect on the borrower: You won't be
counted out for a mortgage late, when that could normally eliminate your
ability to get refinanced at the lowest rates available. If you have a recent
mortgage late, you can still apply for HARP once you meet the relaxed mortgage
Whatâ€™s new No. 2: Relaxed Foreclosure
& Bankruptcy rules: Your HARP loan could be approved, regardless of
how recently a borrower filed bankruptcy or experienced a foreclosure.
Effect on you: Normally, if you filed for
bankruptcy or experienced a foreclosure you would have to wait years before you
could successfully refinance.
Occupancy Requirements Relaxed
Whatâ€™s new: Owner Occupancy: HARP
loans are no longer restricted only to owner-occupants.
Effect on the borrower: You can now use
HARP to refinance your second home or investment property.
Lenders Must Show that a Borrower Benefits from the
Whatâ€™s new: Lenders must show that
the HARP mortgage borrower derives one or more of the following four benefits
in the new loan:
1.Â Â Â Â Â
Reduce the size of the monthly payment.
2.Â Â Â Â Â
Change to a more stable loan product, such as moving
from an adjustable-rate mortgage to a fixed-rate mortgage.
3.Â Â Â Â Â
Reduce the interest rate.
4.Â Â Â Â Â
Reduce the loan amortization term (moving to a
Relaxed Condominium Requirements
Whatâ€™s new: HARP eligibility used
to require that no more than 10% of units in the complex be owned by one person
and that no more than 20% of owners in the complex be behind on their HOA dues.
These requirements are now removed.
Effect on the borrower: Â More condo owners will now qualify for HARP.
If you own a condo, qualifying for the HARP program is no longer dependent on
your neighbors' finances.
Condominium owners have perhaps the best reason to be optimistic.Â Lenders are being relieved of the
responsibility (for HARP refinance loans only) to ensure that condo projects
meet the often strict project approval requirements of Fannie Mae and Freddie
Borrowers living in condominium projects that have seen a sharp increase in
the number of renters or those that have experienced some level of budgetary
stress will be much more likely to find relief under HARP 2.0 than they have
under existing programs (as long as their loans are owned by Fannie or
Hold Your Horses
Although applications could be submitted for the new HARP 2.0 mortgages in
December 2011, there are those who believe the bulk of HARP mortgages will not
be approved until March, 2012. Â Both
Fannie and Freddie must update their automated loan underwriting/approval
software by March 2012. Â Until then,
while lenders may approve HARP mortgages by manually underwriting the loans,
loans that are manually underwritten expose the lender to greater risk. If a
manually underwritten loan defaults, the lender will be required to buy back
Given the protections that the lender will have once the automated
underwriting programs are updated and ready in March 2012, it seems very likely
that most loan originators will wait until March 2012. Be ready to move forward
with an application, once lenders start taking them but be prepared for a very
long process before your loan closes.
Before refinancing, borrowers should know whether their current loan is a
recourse or non-recourse loan and also be familiar with their stateâ€™s
anti-deficiency laws. Refinancing a non-recourse loan could expose the borrower
to responsibility for a potentially huge financial obligation where no such
obligation currently exists.
Recourse, Non-recourse, and Anti-deficiency
In some states, refinancing can remove the consumer protections, called
anti-deficiency laws, which protect underwater homeowners who default on their
mortgages. Â It is recommended that
homeowners learn the anti-deficiency laws in their states, and determine if a mortgage
refinance changes their rights. Â Anyone
with a non-recourse loan should carefully weigh the decision to turn a
non-recourse loan into a recourse loan.
Basic HARP Requirements
Not every upside-down home qualifies for HARP 2.0. Here is a summary of the
- The loan must be owned or
guaranteed by Fannie Mae or Freddie Mac
- The loan was sold to Fannie
Mae or Freddie Mac on or before May 31, 2009.
- The loan was not refinanced
under HARP previously, unless it is a Fannie Mae loan that was refinanced
under HARP from March through May, 2009.
- The loanâ€™s current
loan-to-value (LTV) is greater than 80%.
More About HARP 2.0
How does mortgage insurance impact qualifying for HARP 2.0?Â Mortgage
insurance on a loan should not block a refinance under HARP 2.0.
Readers who do not have Fannie, Freddie, or other GSE loans are not eligible
for HARP 2.0. Â In late January 2012,
President Obama proposed a similar plan for non-GSE home loans. See Obama
Refinance Plan for more information on this proposal.
More HARP updates will be released both by lenders and by Fannie and
Freddie, so keep checking with MoveUpProperties.com to stay updated on details
of the new HARP program.