HARP 2.0 aims to help more homeowners.
Government program removes cap on refinancing with negative equity.
A recent expansion of the U.S. government's Home Affordable Refinance Program, or "HARP," will give homeowners who owe more than their home is worth a new opportunity to refinance at today's low interest rates.
The Federal Housing Finance Agency (FHFA) announced the latest updates to the program. These changes, denoted "HARP Phase II" or "HARP 2.0," are intended to let more homeowners refinance even if they have no equity, a position known as being "underwater" or "upside-down." Negative equity typically is a bar to refinancing through conventional loan programs.
HARP was first introduced in early 2009. Since then, more than 894,000 homeowners have refinanced through the program, according to FHFA. Yet many more likely have been disappointed by the program's limits. The latest changes open the door a little wider.
Here's a summary of the guidelines:
- The homeowner's current mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac and have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- Loans insured by the Federal Housing Administration (FHA) or guaranteed by the U.S. Department of Veterans Affairs or the U.S. Department of Agriculture Rural Development agency aren't eligible for HARP. However, homeowners who have those loans might be able to qualify for other programs.
- Most loans that were already refinanced through HARP cannot be refinanced through HARP a second time. An exception is Fannie Mae loans that were HARP-refinanced between March 2009 and May 2009. Those loan are allowed to re-HARP.
- The loan-to-value ratio (LTV) must be at least 80 percent. If the new loan has a fixed interest rate, there is no maximum LTV. If the new loan has an adjustable interest rate, the maximum LTV is 105 percent.
- Maximum conforming loan limits apply to new loans. These limits vary by county.
- No cash out is allowed.
- No appraisal is required if the lender can use an automated valuation model, or "AVM."
- Some HARP loan fees have been lowered or eliminated.
- The homeowner's existing loan must be current with on-time payments for the last six months and no more than one 30-day late payment in the last 12 months.
- Borrowers must meet income, asset and credit score guidelines. Income verification is required.
- New mortgage insurance isn't required. However, existing mortgage insurance will transfer to the new loan. Loans that have lender-paid mortgage insurance, which is built into the interest rate, aren't eligible for HARP.
- Owner occupancy isn't required.
The new guidelines were to be implemented Dec. 1, 2011. However, lenders aren't required to participate and some might expand the program on their own timetable. HARP itself is scheduled to sunset Dec. 31, 2013.
Some lenders use brand names for HARP loans. Fannie Mae calls the program "DU Refi Plus." Freddie Mac uses the name "Relief Refinance."
Lenders and mortgage brokers are encouraging homeowners to submit their loan application early and get the process started even if all the details of the lender's HARP expansion aren't yet finalized. Those who are "first in line" with a completed file might be able to close sooner and get the benefit of a lower interest rate.
FHFA is encouraging homeowners to consider a shorter term, say, 15 years, instead of the traditional 30 years. A shorter term might help the homeowner overcome negative equity more quickly.
HARP isn't intended to delay or stop a foreclosure, but rather, allow the homeowner to refinance even if the loan is more than the house is worth. Homeowners who are unemployed, burdened by unaffordable payments or facing foreclosure might benefit from other Making Home Affordable programs.