Improved HARP music to ears of more homeowners

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The new and improved Home Affordable Refinance Program (HARP) is spreading a wider net for struggling homeowners previously unable to take advantage of the federal program.

With refinancing rates at record lows, this can be great news for more homeowners.

Originally released in 2009, HARP allows qualifying homeowners to refinance Fannie Mae or Freddie Mac home loans even if they owe more than the home is worth.

An estimated 1 million homeowners have benefited from HARP since its launch and that number should double with the updated program, according to the Federal Housing Finance Agency (FHFA).

Unfortunately, even 2 million homeowners is a small percentage of the nation’s struggling homeowners suffering plummeting home values and the inability to refinance.

Old HARP failures

Dubbed HARP 2.0, the new guidelines are intended to help more homeowners by removing several of the roadblocks that came with the earlier version.

• Homeowners were ineligible if their mortgages exceeded 125 percent of their home’s value. Many homeowners in hard-hit states Arizona, California, Florida, Michigan, Nevada and others suffered loan-to-value (LTV) ratios of more than 200 percent.

• Lender participation has been much lower than expected. Even if some homeowners qualified, their lender refused to participate. Processing has been tedious with lenders dragging their feet and prioritizing conventional refinances. For homeowners who were able to continue to make on-time payments on high interest rate mortgages, bottom-line oriented lenders saw no reason to help them into a lower interest rate mortgage.

• High out-of-pocket, up-front HARP costs and fees shut out otherwise eligible homeowners who couldn’t cover those costs.

HARP 2.0

As with the original version, HARP 2.0 rules specify that only homeowners with Fannie Mae or Freddie Mac mortgages made prior to June 1, 2009 are eligible. HARP is a Making Home Affordable program, available until Dec. 31, 2013.

Homeowners must be current on their mortgage payments and have no late payments for the last six months prior to applying for the program. They may have no more than one late payment in the last 12 months.

As the most beneficial change, the program removes the 125 percent LTV ratio ceiling. Now, it doesn’t matter how far underwater a homeowner has become, and that’s a boon for homeowners in those hard-hit states, provided the new loan is a fixed rate mortgage FRM.

For eligibility, the minimum LTV ratio on the old loan remains at 80 percent. While there is no LTV ceiling on a new FRM loan, if the new loan is an adjustable rate mortgage (ARM) the new loan can have no more than a 105 percent LTV.

Lender participation expected to increase

Under the original HARP, lenders had little bottom-line incentive to participate and also were reluctant because of required “representations and warranties” which burdened lenders with certain responsibilities should homeowners default on the refinanced mortgages.

HARP 2.0 eliminates some of those representations and warranties and shifts more of the responsibility to the government when homeowners default.

Hopefully, the shift will increase lender participation and thereby help even more homeowners who now can also take advantage of record low interest rates not available when the original HARP began.

HARP 2.0 isn’t a silver bullet

Even with expected greater participation, HARP 2.0 still fails to meet the needs of a large portion of struggling homeowners.

• Homeowners who are behind on their payments more than once in 12 months are ineligible. Likewise, homeowners with a single late payment in the last six months is ineligible.

• Only homeowners paying their own mortgage insurance are eligible. If your lender is paying the mortgage insurance, you cannot participate in HARP. Check with your lender if you are unsure who pays.

• Cash-out refinances are not possible with HARP 2.0.

• Ginnie Mae, Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) mortgages are not eligible.

However, during his Jan. 24, 2012 State of the Union Address, President Obama alluded to a new effort to include more lenders, including private lenders and to remove some of the burdensome fees associated with HARP refinances.

• Jumbo mortgages are not eligible. The conforming loan limit in most cities is $417,000. Some areas have conforming loan limits as high as $625,000. If you are unsure, you can find the limit in your area on the U.S. Department of Housing and Urban Development’s
“FHA Mortgage Limits” page
.

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