Important HARP Loan Program Update:

HARP 2.0 Could Help as More than 1.5 Million Borrowers Refinance at Today’s Low Mortgage Rates:

Freddie Mac Chief Economist Frank Nothaft recently stated that the new Home Affordable Refinance Program could possibly help as many as 1.6 million borrowers to refinance their home loans at today’s record low mortgage rates. Nothaft commented in Freddie Mac’s November 2011 Economic Outlook:

“HARP is available for certain borrowers with current loan-to-value ratios above 80 percent and whose loan is owned by Freddie Mac or Fannie Mae. From inception (April 2009) through September 2011, more than 900,000 borrowers have obtained a refinance loan through HARP. In addition to an extension of HARP through the end of 2013, the recent announcement included the following enhancements: waiving certain loan seller/servicer reps and warranties for eligible borrowers, reduction or elimination of some fees that had been previously assessed, removal of the maximum current loan-to-value limit, and eliminating the need for a new property appraisal in some cases. Estimates of the number of additional HARP refinances vary, with the Federal Housing Finance Agency stating that “HARP refinances may roughly double or more from their current amount”, Keefe Bruyette & Woods’ analysts estimating about “1 million incremental loans”, and Moody’s Analytics projecting as much as 1.6 million additional loans above what would have occurred under the original HARP terms, bringing the total number of HARP refinances to as much as 2.85 million loans by the end of 2013.”

In addition to helping more than a million underwater homeowners refinance their mortgages, HARP 2.0 could cause an increase in mortgage originations of between $200-300 billion in 2012-2013. On average, somebody refinancing with HARP 2.0 could save more than $2,000 in interest payments on their home loan in the first twelve months after refinancing.

It is also notable that Fannie Mae has made some key changes to their underwriting guidelines pertaining to HARP 2.0 that could encourage more lenders to jump on board with the program. Fannie eliminated an underwriting requirement that forces the lender to determine is the borrower has a “reasonable ability to repay” the loan based upon debt-to-income ratio, income, and other factors. It appears that the lender is now able to qualify borrowers through a streamlined process that could only take into account credit score and the number of recent payments made. This could make it significantly easier to qualify borrowers for new loans.

Most major lenders are still in the process of revising their underwriting guidelines for HARP 2.0, and the program should roll out widely sometime in the first quarter of 2012.

On November 15, 2011, Fannie Mae and Freddie Mac released updated guidelines for the newest version of the Home Affordable Refinance Program.  The updates are designed to help as many as one million homeowners refinance at today’s low mortgage rates.

It appears that many lenders are going to participate in the program, although we won’t know for sure until individual investors release their own overlays for this program.

Some of the key features of the program include:

• HARP is now extended through the end of 2013.
• In order to be eligible, loans must have been purchased by Fannie Mae or Freddie Mac before May 31, 2009 and have loan-to-value ratios of at least 80%.
• The 125% LTV cap on fixed rate mortgages has been eliminated (there is still an LTV cap of 105% on adjustable rate mortgages).
• To qualify, borrowers must be current on their mortgage for the last six months, and have no more than one late payment over the past year.
• New appraisals may not be needed to qualify.

As more details of the updated program emerge, we will update this space.

On October 24, 2011,the Federal Housing Finance Agency announced that it is making a series of changes to the Home Affordable Refinance Program (HARP). The changes are intended to allow even more underwater homeowners refinance under HARP. The biggest change is the elimination of the 125 LTV ceiling on HARP loans. This means that theoretically, a borrower can refinance no matter how far they are underwater.Some of the proposed changes 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 LTV 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 and Freddie Mac;
• Eliminating the need for a new property appraisal where there is a reliable AVM
• (automated valuation model) estimate provided by the Enterprises; and
• Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

Only those who have a job and are current on their Freddie Mac- or Fannie Mae-owned mortgages are eligible for the new program. Those who have already refinanced with HARP are not eligible.

Edward Demarco, the Acting Director of the FHFA commented:

“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach. Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets”.

Fannie Mae and Freddie Mac will issue guidance on the HARP updates to lenders and servicers by November 15, 2011. At that time we should have additional clarity on the eligibility requirements for the new version of HARP. It is possible that these changes could take effect as soon as December 2011.