Making Home Affordable

Last month, Fannie Mae and Freddie Mac unveiled lender instructions for the government’s revamped HARP program, kick-starting a potential refinance frenzy across Illinois and nationwide.

HARP stands for Home Affordable Refinance Program. The updated program is meant to give “underwater homeowners” an opportunity to refinance at today’s low mortgage rates.

In the two-plus years since its launch, HARP’s first iteration helped fewer than 900,000 homeowners.  The making home affordable program did not help as many homeowners due to high loan level adjustments impacting mortgage rates, low appraisals and high loan to values.  HARP II is expected to reach millions that were unable to qualify on the initial making home affordable program.

Lenders began taking HARP II loan applications December 1, 2011.

To apply for HARP, applicants must first meet 4 basic criteria :

1. The existing mortgage must be guaranteed by Fannie Mae and Freddie Mac
2. The existing mortgage must have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009
3. The mortgage payment history must be perfect going back 6 months
4. The mortgage payment history may not include more than one 30-day late payment going back 12 months 

If the above criteria are met, HARP applicants will see an opportunity to dramatically decrease payments by taking advantage of historically low mortgage interest rates.

For HARP applicants, loan-level pricing adjustments are waived in full for loans with terms of 20 years or fewer; and maxed at 0.75 for loans with terms in excess of 20 years.  

This will result in dramatically lower mortgages rates for HARP applicants — especially those with credit scores below 740. Some applicants will find HARP mortgage rates lower than for a “traditional” conventional mortgage.

In addition, HARP applicants are exempted from the standard waiting period following a bankruptcy or foreclosure, which is 4 years and 7 years, respectively.

These two items are inclusionary and should help HARP reach a broader U.S. audience.

HARP contains exclusionary policies, too.

1. The “unlimited LTV” feature only applies to fixed rate loans or 30 years or fewer. ARMs are capped at 105% loan-to-value.
2. Applicants must be “requalified” if the proposed mortgage payment exceeds the current payment by 20%.
3. Applicants must benefit from either a lower payment, or a “more stable” product to qualify

Making Home Affordable should help many more underwater home owners.