HARP 2.0 Mortgage Refinance Loan Program Tips

HARP 2.0 Mortgage Program Allows Homeowners to Refinance to Current Low Interest Rates.

Editor’s Note: There have now been over 2 Million HARP loans finalized. Over 1 million were made in 2012, after the HARP 2.0 program was expanded.  Some lenders are stricter on credit scores and some are restricting LTVs, so be sure to shop around. Bookmark this page and check back regularly, as Bills.com will continue to update this page as HARP evolves.

The Home Affordable Refinance Program (HARP) allows owners of underwater homes to refinance to today’s low interest rates. Refinancing is typically not possible for owners with little or negative equity. The key requirement for HARP eligibility is that the home loans must be owned by Fannie Mae or Freddie Mac.

The Federal Housing Finance Agency (FHFA) and Administration’s hopes for HARP is it will both stabilize the housing market and boost the overall economy by putting extra dollars in the pockets of consumers who are likely to spend them. The FHFA is conservator of Fannie Mae and Freddie Mac, and is the chief regulator of Fannie, Freddie, and the 14 housing-related GSEs and Federal Home Loan Banks.

Mortgage experts are optimistic about the new HARP. “Although there is still a good deal of uncertainty surrounding the specifics of how the expanded HARP program will be implemented at the individual lender level, the November 15 announcements from Fannie and Freddie do provide a source of encouragement for the equity challenged segment of the market,” said Peter Citera, vice president at Chicago Bancorp and mortgage education director at the Real Estate Institute.

Approximately 4 million Fannie and Freddie borrowers owe more on their mortgage than their homes are worth. Across the US, nearly 11 million are underwater, or about 22.5% of all outstanding loans, according to CoreLogic, a data provider to mortgage underwriters. About 2.4 million hold less than 5% equity in their homes.

HARP At a Glance

HARP has changed over time. In October 2011, the Obama Administration announced comprehensive rules for the new HARP, which people in the industry called “HARP 2.0.” In November, the Federal Housing Finance Agency (FHFA) expanded HARP and announced updated guidelines, which are discussed below. On March 19, 2012, the start of the automated loan approval systems expanded homeowner’s choices in lenders.

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. 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%.March 2012 Update: Perhaps the biggest news in the November 2011 announcement by Fannie Mae and Freddie Mac was that HARP 2.0 would allow for unlimited LTV loans. This went into effect in December 2011 for loans processed by the original lender through the manual underwriting systems. With the opening of the automated systems in March 19th the expectation was that lenders would apply these standards to all new HARP loan applications. The big surprise, and disappointment for many, is that some of the lenders have issued stricter guidelines that limit the LTV to the previous HARP 1.0 125% level or lower. 
• The loan on your property is owned or guaranteed by Fannie Mae or Freddie Mac (see Fannie or Freddie loan? table below).
• 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 six months.
• You have a reasonable ability to pay the new mortgage payments. Editor’s note: Fannie Mae removed the "reasonable ability to pay" clause.
• The refinance improves the long-term affordability or stability of your loan.

HARP Changes for Lenders & 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.

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 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.

December 2011 Update: HARP 2.0 debt-to-income requirements have changed. According to a Fannie Mae announcement on December 20th,2011, lenders will not longer have to demonstrate that the borrowers have a “reasonable ability to pay, unless the loan payment increases by 20% or more.” This applies only to loans borrowers do with their current lenders through the manually underwritten Refi Plus system. Loan applications that go through the automated DU system must meet the basic DU 45% maximum debt-to-income requirement.

Credit Score Requirements Relaxed

What’s new: 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 is not enough to automatically disqualify a borrower.

March 2012 Update: “It is important for borrowers to be aware that individual lenders are implementing their own underwriting overlays,” said Craig Repmann, managing partner, Heritage Mortgage Banking Corp. “For example Fannie and Freddie do not have a FICO score requirement to qualify for a HARP mortgage, but most lenders are requiring a minimum FICO score. It is going to be difficult for borrowers with a FICO score below 620 to qualify for HARP 2.0. There are some lenders out there doing HARP 2.0 with FICO scores below 620, but it will take some effort to locate these lenders.”

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 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).”

Recourse, Non-recourse, and Anti-deficiency

There has been a large increase in the number of HARP loans since March, 2012, when Fannie and Freddie updated their automated loan underwriting/approval software. Before then lenders could approve HARP mortgages by underwriting the loans manually. Loans underwritten manually expose the lender to greater risk because if a manually underwritten loan defaults, the lender is required to buy back the loan.

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. Loan must be owned or guaranteed by Fannie Mae or Freddie Mac

2. Loan was sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

3. 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. Loan’s current loan-to-value (LTV) is greater than 80%.

More About HARP 2.0

Many readers have asked Bills.com about mortgage insurance and how it may impact qualifying for HARP 2.0. Mortgage insurance on a loan does not block a refinance under HARP 2.0 automatically. See the Bills.com resource Mortgage Insurance and HARP Refinance to learn more.

Readers who do not have Fannie, Freddie, or other GSE loans are not eligible for HARP 2.0. 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 and the Bills.com article with a detailed "HARP 3 update," that discusses other proposals to make refinancing possible for borrowers who have not yet been able to fit into existing programs.

More HARP updates will be released both by lenders and by Fannie and Freddie, so keep checking with Bills.com to stay updated on all HARP details.