New, revamped HARP program for Short Sale Homeowners

Did any of your short sale sellers call you last week to tell you that they were cancelling their short sale listing? Did they tell you that they were going to take advantage of Obama’s new program instead?

Well, that’s just the latest in a series of pieces of information that distressed borrowers hear about in the news, yet do not study in more detail. Below I have outlined the ins and outs of the new, revamped HARP program. After you read the information, you will see that most short sale sellers will not qualify for this program—despite the fact that they tell you that they will.

About HARP

The Home Affordable Refinance Program (HARP) is a government mortgage program, first introduced in 2009 as a means to help underwater homeowners.

HARP allows “underwater” homeowners to refinance their respective homes.

HARP is for mortgages secured by Fannie Mae and Freddie Mac only.

The Government Improves Upon The HARP Program

When HARP was first launched in 2009, the government said that the program would help millions of otherwise-ineligible U.S. households to obtain a refinance of their mortgage. At the time, rates were falling and homeowners were eager to lock in savings. Unfortunately, the government’s estimates fell short. In the last two years, only 838,000 homeowners have used the HARP program. As a result, HARP has been accused of missing the mark.

On October 24, 2011, there was a major announcement made about changes to the HARP program. The biggest change is that some homeowners who are significantly underwater (over 125% loan to value) can now qualify for the program.

Here are some answers to commonly asked questions about the new revamped HARP program (HARP 2.0):

What Is HARP?

HARP was started in April 2009. The government calls it Home Affordable Refinance Program.

In order to be eligible for the HARP refinance program:

1. Fannie Mae or Freddie Mac must back your loan.
2. Your current mortgage must have a securitization date prior to June 1, 2009.

If you meet these two criteria, you may be HARP-eligible. If your mortgage is FHA, USDA or a jumbo mortgage, you are not HARP-eligible.

How do I know if Fannie Mae or Freddie Mac holds the mortgage? You can use lookup tools on the Fannie Mae and Freddie Mac websites.

If Fannie Mae or Freddie Mac holds the mortgage, is the borrower automatically eligible for the Home Affordable Refinance Program? No. There are a number of criteria. Having your mortgage held by Fannie or Freddie is just the beginning.

What if neither Fannie Mae nor Freddie Mac has a record of the mortgage? If neither Fannie nor Freddie has record of the mortgage, the borrower is not eligible for this refinance program.

Is a borrower eligible for the Home Affordable Refinance Program if s/he is behind on the mortgage payments? No. You must be current on your mortgage to refinance through this program.

Will the Home Affordable Refinance Program help borrowers to avoid foreclosure? No. The Home Affordable Refinance Program is not designed to delay, or stop, foreclosures. It’s meant to give homeowners who are current on their mortgages, and who have lost home equity, a chance to refinance at today’s low mortgage rates.

What are the minimum requirements to be eligible for HARP? First, the home loan must have been paid on time for the last 6 months, and at least 11 of the most recent 12 months. Second, your mortgage must have been sold to Fannie or Freddie prior to June 1, 2009. Lastly, you may not have used the HARP program before: only one HARP refinance per mortgage is allowed.

Is there a loan-to-value restriction for HARP? No, there is no loan-to-value restriction. All homes (regardless of equity) are eligible for the HARP program—just as long as the borrower and the loan meet all of the other criteria.

What’s the biggest mortgage you can obtain with a HARP refinance? HARP refinances are limited to your area’s conforming loan limits. In most cities, the conforming loan limit is $417,000. However, in San Diego County, the current confirming loan limit for a single-family home is $546,250.

If a borrower in unemployed, will s/he eligible for HARP? No. Income verification is required for the HARP refinance program.

Is there a minimum credit score to use the HARP program? No. There is no minimum credit score requirement with the HARP refinance program. However, you must qualify for the mortgage based on traditional underwriting standards.

While this program will open up opportunities for responsible borrowers who are significantly underwater, it is definitely not a salvation for most of those sellers participating in short sales. So, before short sale sellers get super excited about the refinance, make sure that they understand the scope of the program.