Breaking down the new HARP program
The government is revamping its Home Affordable Refinance Program (HARP). The expanded program is designed to help underwater homeowners take advantage of today's low mortgage rates.
The government estimates that 7 million households will now be eligible to refinance under the new HARP.
First, some background on HARP
HARP was first launched in April 2009 to assist low-equity homeowners take advantage of falling mortgage rates.
HARP required just three things:
- Your current mortgage must be backed by either Fannie Mae or Freddie Mac
- Your current mortgage must have been securitized prior to June 1, 2009
- Your loan-to-value (LTV) ratio must not exceed 125 percent
Unfortunately, HARP failed to meet its goal of refinancing millions of homeowners. The combination of high loan costs and a lack of lender participation combined to stymie the majority of HARP's applicants. As of last month, less than 900,000 households were approved for a HARP refinance.
HARP's new guidelines
On October 24, 2011, the government announced they were expanding HARP in hopes of reaching more U.S. homeowners. The new guidelines aim to simplify and streamline the HARP refinance process.
LTV limits waived
The most notable change is the LTV limit has been waived. Therefore, no matter how far underwater you are, you're still eligible for HARP. That means the program is now in reach for homeowners in states such as Nevada, Michigan and Arizona where LTVs can exceed 200 percent.
Rep and Warranties
Another big change is the elimination of certain representations and warranties for HARP-participating lenders. "Reps and Warranties" is an esoteric mortgage term to most homeowners, but to lenders, it's a big deal.
Reps and Warranties define lender obligations when a loan goes bad. The new HARP guidelines shift responsibility from the banks to the government.
With less liability for the "bad loans" they make, a greater number of banks will now participate in HARP, giving homeowners more choices which will bring, in theory, lower rates.
Click here for a complete Q&A on the HARP II guidelines
In its initial announcement, the Federal Housing Finance Agency was vague about just when the new HARP program would begin. As of now, there are two dates that you should mark on your calendar.
The first date is Tuesday, Nov. 15, 2011.
This is the date by which the government expects to reveal the program's details. Until that date, your bank will not have specific information about how HARP 2011 applies to your specific loan and whether or not you qualify.
The second date is Thursday, Dec. 1, 2011.
This is the date by which HARP-participating lenders are expected to implement the new guidelines.
The economic impact could be great
Simply stated, refinancing households are good for the economy. All three forms of refinances bring economic benefit along with them:
- Cash-out refinances pay down debts, allowing homeowners to purchase goods such as cars or appliances, and/or finance job-creating home construction projects
- A term-reduction refinance is when a borrower switches from say, a 30-year mortgage to 15-year mortgage, reducing long-term interest costs
- Basic rate-and-term refinances lower monthly mortgage payments, freeing up household cash for saving or spending
Remember, although the FHFA encourages all lenders to participate, not all of them will.
Dan Green is a loan officer with Waterstone Mortgage in Cincinnati, Ohio, and the author of the nationally recognized mortgage blog, TheMortgageReports.com. Dan handles purchase and refinance mortgages, and can assist with the new HARP Refinance. Follow him on Twitter at @mortgagereports.