Some Underwater Borrowers Now Eligible For Refinance Under HARP

The Federal Housing Finance Agency, with Fannie Mae and Freddie Mac (the Enterprises), today announced a series of changes to the Home Affordable Refinance Program (HARP) in an effort to attract more eligible borrowers who can benefit from refinancing their home mortgage. HARP provides borrowers, who may not otherwise qualify for refinancing because of declining home values or reduced access to mortgage insurance, the ability to refinance their mortgages into a lower interest rate and/or more stable mortgage product.

One of the biggest changes is the elimination of the loan to value ceiling for fixed rate mortgages backed by Fannie Mae or Freddie Mac. In the past, if your loan balance was more than 125% of your home’s value, you were not eligible to refinance. As an example, if your loan balance was $125,000 but your home was only worth $90,000 you were not eligible to refinance at today’s low interest rates. In addition to removing the LTV ceiling of 125%, other changes include:

  • Elimination of certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
  • Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model);
  • Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

The way I see it, this program can benefit borrowers in two different ways. For those struggling to make their mortgage payments, refinancing at today’s lower interest rates will obviously lower the monthly payment and relieve some of the financial strain. Another option is to refinance into a shorter term mortgage, which will allow the borrower to pay down their principal faster and in some cases eliminate the problem of negative equity. The lower interest rate may provide borrowers the opportunity to shorten the term of their mortgages without much change in their monthly payments, and perhaps even a reduction in that payment since interest rates on short term mortgages are typically lower than on 30-year mortgages.

You might be eligible if:

  • Your loan was sold to Fannie Mae or Freddie Mac on or before May 31, 2009. Homeowners can determine if they have a Fannie Mae or Freddie Mac loan by going to:
    http://www.FannieMae.com/loanlookup/ or calling 800-7FANNIE (8 am to 8 pm ET)
    https://ww3.FreddieMac.com/corporate/or 800-FREDDIE (8 am to 8 pm ET)
  • Borrowers must be current on their mortgage payments with no late payment in the past six months and no more than one late payment in the past 12 months.
  • The current loan-to-value (LTV) ratio must be greater than 80%.

The Enterprises will send out instructions to lenders by November 15, 2011 and some lenders may be accepting refinance applications as soon as December 1, 2011.

Information compiled from Federal Finance Housing Agency News Release October 24, 2011.

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