Home Affordable Refinance Program (HARP 2.0) Information

Home Affordable Refinance Program (HARP 2.0) Information

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With the downturn of the MN real estate market, many homeowners have found themselves underwater on their mortgages.  The majority of these homes were purchased at 5-7% interest rates common during the boom years through 2006/2007.  Current interest rates are often below 4%, making refinancing a MN home attractive to take advantage of these substantially lower interest rates.  Trouble is, values are such that many homes will not appraise at a value sufficient to enable refinancing.  No longer is this an issue….HARP 2.0 has arrived.  While details are still coming about about the new HARP 2.0 program, here is what we have so far:

HARP allows homeowners facing difficultiesrefinancing 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. Here are the general eligibility guidelines for HARP:

  • 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; and check 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.
  • 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. Some key underwriting details are not yet announced, and are expected to be released before March 2012.

Limited Liability
What’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 non-performing loan.

Effect on you: 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
What’s new: Fees that Fannie and Freddie charge lenders for high LTV loans are being cut.

Effect on you: 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
What’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 “acceptable credit risk” (and what that means is yet to be determined).

Effect on you: 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 income.

Underwriting Requirements Relaxed
What’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 months.

Effect on you: 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 late requirements.

What’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
What’s new: Owner Occupancy: HARP loans are no longer restricted only to owner-occupants.

Effect on you: You can now use HARP to refinance your second home or investment property.

Lenders Must Show that a Borrower Benefits
What’s new: Lenders must show that the HARP mortgage borrower derives one or more of the following four benefits in the new loan:

  1. Reduce the size of the monthly payment
  2. Change to a more stable loan product, such as moving from an adjustable-rate mortgage to a fixed-rate mortgage
  3. Reduce the interest rate
  4. Reduce the loan amortization term (moving to a shorter-term loan)
Relaxed Condominium Requirements
What’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 you: More condo owners will now qualify for HARP. If you own a condo, your qualifying for the HARP program is no longer dependent on your neighbors’ finances.

“Condominium owners have perhaps the best reason to be optimistic; 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 Mac,” Citera said. “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 Freddie).”

Hold Your Horses

The majority of HARP 2.0 files will not be approved until sometime after March 1st.  Both Fannie and Freddie must update their automated loan underwriting/approval software by March, 2012. 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 the loan.

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 state’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.

Basic HARP Requirements

Not every upside-down home qualifies for HARP 2.0. Here is a summary of the basic requirements:

  1. The loan must be owned or guaranteed by Fannie Mae or Freddie Mac
  2. The loan was sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  3. 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.
  4. The loan’s current loan-to-value (LTV) is greater than 80%.

WHO TO CONTACT for HARP 2.0 Refinancing in Minnesota

For details on HARP 2.0 Refinancing in Minnesota, contact the preferred lender for the South Metro Real Estate Team.

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Jesse Schneider
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As a full-time MN Realtor® since 2003, I have built my business on making customer satisfaction my #1 goal. I take great pride in timely communication, my education and knowledge of the changing real estate industry, and the incorporation of technology in the... Read More

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