After weeks of anticipation, homeowners can begin applying for a newly expanded loan program that allows some upside-down homeowners to refinance at today’s best mortgage rates.
Fannie Mae and Freddie Mac on Nov. 15 released expanded guidelines for the Home Affordable Refinance Program, which applies to mortgages backed by either of the two GSEs.
In October, President Obama announced relaxed rules that included lifting the 125 percent cap on loan to value, but the actual written guidelines were only recently released.
The newly expanded program provisions include:
FANNIE OR FREDDIE: The program is only eligible for home loans that have been owned or backed by Freddie or Fannie since at least May 31, 2009. That doesn’t mean you get a mortgage statement from either of those entities. Even though you may write your monthly check to Bank of America or Wells Fargo, your loan could be owned or guaranteed by one of these two GSEs.
So how do you know? To find out if your loan qualifies, check online at:
Freddie Mac: https://ww3.freddiemac.com/corporate/
Fannie Mae: http://www.fanniemae.com/loanlookup/
Or call our office at 951-778-9700 and we’ll help you get that answer.
UNDERWATER LOANS: For 15- to 30-year fixed loans, there is no cap on the refinance loan amount, regardless of whether your home is upside-down. The expanded program eliminated the 125 percent LTV limit and is expected to double the number of borrowers eligible to participate. And of course, that is why interest is so high for this program.
But the written guidelines reveal loan-to-value conditions on other loan types. LTV is limited to 105 percent for fixed-rate loans with terms of 31 to 40 years and for adjustable-rate mortgages with initial fixed periods of five or more years and terms up to 40 years.
HARP is limited to only those homeowners with less than 20 percent equity. Homes with more than 20 percent equity can more easily qualify for existing conventional refinance programs and thus do not need this program.
BANK INCENTIVES: To spark competition among lenders to approve HARP refinances, the GSEs waived requirements that lenders be responsible for any representations and warranties associated with the original loan. Additionally, lenders will not be required to guarantee that the new mortgage meets standard underwriting guidelines as long as the file is complete and all documentation is properly collected.
Lenders are not required to guarantee value, marketability, or condition of the property unless they obtain a new appraisal. And there are no protections against fraudulent activities.
Officials at the GSEs say the easing of lender representations and warranties could be the critical factor to prompt banks to make HARP loans for consumers. Though the big four lenders – Bank of America, Wells Fargo, Chase and Citi – have vowed to participate, the program is optional.
LATE PAYMENTS? To qualify for a HARP refinance, you must be current on your payments. You cannot have any payments that were 30 or more days late in the past six months, and you are allowed only one payment of 30 or more days late in the past 12 months, according to updated program guidelines.
CAN YOU AFFORD PAYMENT? The homeowner must fit into regular underwriting guidelines, which require an income sufficient to afford the new house payment along with property taxes, insurance and all other expenses. Your lender will detail the income and expense ratios based on your specific situation.
BANKRUPTCY or FORECLOSURE? The borrower no longer must meet the standard waiting period following a bankruptcy or foreclosure, which is critical in today’s housing environment.
Since HARP was launched in 2009, nearly 900,000 borrowers have participated. Industry insiders estimate 720,000 borrowers can qualify under the new guidelines, which is about 6.5 percent of the estimated 11 million underwater homeowners.
Major lenders have predicted they will take applications in December. The program ends Dec. 31, 2013.
Even though a homeowner may qualify for a HARP refinance, the program is voluntary: Banks remains free to reject a HARP refinance even if a homeowner meets all requirements. If a bank rejects you, persistence is key – find another bank!
Homeowners who don’t qualify for HARP have several other options to consider if they are struggling with their current payments. Some homeowners have mortgages with payments expected to increase next year. Others are dealing with reduced income or must relocate for work.
In these cases, if HARP is not an option, you have alternatives. Call us today at 951-778-9700 for details.
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