The Federal Finance Agency along with Fannie and Freddie announced changes to the existing HARP - Home Affordable Refinance Program. Essentially, here are the changes.
Eliminating certain risk based pricing adjustments and lowering fees for other borrowers.
Currently when a borrower refinances to a 15 year note, a lot of the loan level price adjustments do not apply. I'm not sure how this will change to encourage more borrowers to refinance to shorter terms, but there is some discussion of that.
The key to encouraging shorter term mortgages is, naturally, they pay down quicker, build equity quicker and fewer borrowers are underwater.
A big deterrent to refinancing today is not interest rate, or even if a borrower qualifies - a huge problem is the extra credit score and loan to value fees applied to loans over 15 years. In many instances it simply does not make sense. At the same time, not every borrower can go to a 15 year term to save fees.
If loan level price adjustments were gone or greatly reduced it would go a long way to providing more refinance opportunities for longer term mortgages.
Removing 125% CLTV Fannie/Freddie requirement.
I personally have not found this to be an issue. What is sometimes an issue is when there is a second lien holder from whom the borrower needs a subordination agreement. If the new ruling would make it mandatory that second mortgages get subordinated automatically that would have been great. I don't see that it has. There are some states that do have this law in place, but few of them.
If the first mortgagor uses an AVM as referenced below, but the second lien holder will not accept that and requires an appraisal plus FEES to stay second, it can still present a problem.
Waiving certain representatives and warranties some lenders apply to Fannie/Freddie loans. This factor is not likely to change the number of mortgages that can be don
Eliminating the need for an appraisal when there is a valid AVM provided by Fannie/Freddie.
This could be tricky. My thought is that AVM's are not particularly reliable. Underwriters rely too heavily on them now. In some densely populated areas where all the homes look alike, it can be a valuable tool, but not so much in all areas. Hopefully the AVM will not prevent more refinances from closing. HVCC/AIR have caused enough of those types of problems.
AVM is an automated valuation model - it is an estimated value of the subject property.
Also, there are complaints from appraisers who got the shaft with HVCC/AIR and who now see themselves being further barred from making a living when no appraisal is needed.
Extending the deadline for HARP to Dec 31, 2013 for loans owned by Fannie/Freddie prior to May 31, 2009.
Hopefully this deadline along with other changes will get more loans refinanced under HARP.
It will take a while to get the computers set and the details worked out, so it will be a while before we actually take applications under the new guidelines. If we don't see significant relaxing of loan level price adjustments and better appraisals when they are needed, this could just be another failed program.
For now, let's hope the revised HARP program is enough to get some more people refinanced. There is still no easy way for the borrower who has a loan not owned by Fannie, Freddie, or FHA - those higher risk portfolio ARM that are now owned by one of these three. That is still a lot of folks who will not be able to take advantage of the lower interest rates and that is unfortunate.
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