by Fredric J. Gooch, General Counsel – DocuTech Corporation
On October 24, 2011 the Federal Housing Finance Agency, Fannie Mae and Freddie Mac announced they would make a series of changes to the Home Affordable Refinance Program to make more borrowers eligible for the program that allows them to refinance their underwater home mortgages.
HARP was originally introduced in March 2009 as a government program to assist owners of homes with upside-down mortgages to refinance into new fixed rate loans with lower interest rates and lower monthly payments. According to Zillow.com, as of August 31, 2011 only 894,000 borrowers had successfully refinanced through the original HARP program. This was far short of the initial goal of reaching a possible 5 million eligible borrowers. The original HARP suffered from many barriers that made it hard for many borrowers to qualify, such as borrowers in areas that had suffered severely from depreciation in home values. These borrowers were unable to qualify for the program because their loan value fell outside the 80 to 125 LTV threshold.
The recent modifications to the program, known as HARP 2.0, are designed to remove these barriers and make the program more accessible to borrowers with loans owned by the sponsoring entities.
The enhancements to the program include:
- Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
- Removing the current 125 percent loan-to value ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
- Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae or Freddie Mac;
- Eliminating the need for a new property appraisal when there is a reliable automated valuation model estimate provided by the enterprises; and
- Extending the date for HARP until December 31, 2013 for loans originally sold to the enterprises on or before May 31, 2009.
In order to qualify for a HARP 2.0 refinance, borrowers must meet the following criteria:
- The mortgage must be owned by Fannie Mae or Freddie Mac;
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31,2009;
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP between March-May 2009; and
- The borrower must be current on the mortgage at the time of the refinance, with no late payments in the last six months and no more than one late payment in the last twelve months.
The enterprises hope that these changes, such as: extending LTV limits, eliminating some appraisal and underwriting requirements, modifying fees and extending deadlines will help more borrowers become eligible to participate in the revised HARP program. The government believes that these refinances will bring benefits to borrowers, the housing market, borrowers and to the enterprises.