Thursday, November 17, 2011

H A R P: Refinancing For Shaky Loans

Here we go again.

With the blessing of our present administration, we taxpayers are about to offer band-aids for all the shaky loans that are still out there. You will soon be able to refinance your old loan even if you are unemployed, and the value of the house has gone over the edge.

Our government feels that people with little or even negative equity in their homes should immediately refinance their mortgages at what are now historically low rates—the theory being that if they have been making their house payments when the rates were onerous, they deserve an opportunity to stay in their homes at the lowest rates in history.

This initiative, known as the Home Affordable Refinance Program, or HARP, hinges on lenders voluntarily writing new loans for borrowers hard-hit by declining home prices.

The HARP program is open to borrowers who have negative equity in their homes as long as they are making timely payments and their loans are now guaranteed by Fannie Mae and Freddie Mac--which back about half of all U.S. residential loans.

The Federal Housing Finance Agency, said it would relax the representations and warranties participating lenders have to abide by as part of its revamp of the program. So even the lenders who were worried that they could be forced to buy back refinanced loans if defects with the initial mortgage are found, can relax.

As part of the revamp, FHFA said it would scrap a cap that prevented borrowers whose mortgages exceed 125 percent of the value of their homes from participating in the program.

About 3.1 million loans are eligible for the program, and 894,000 borrowers have used HARP to refinance. FHFA said the changes could double that number, though that would still fall far short of the 5 million homeowners the Obama administration had hoped to reach when the program was unveiled in 2009.

In order to be eligible for the HARP program, the present loan must have been written prior to June 1, 2009 and be backed by Fannie Mar or Freddie Mac. FHA and USDA (or jumbos) are not eligible.

All homes, regardless of how “underwater” they are are eligible, there is no loan to value restriction so long as the newly written loan is a fixed rate, and of 15-30 year duration. There will likely be no appraisal since all homes (that are standing) will qualify.

Any HARP lender can refinance your home, you do not need to go to the bank or mortgage company you used originally. If you had PMI, you may still need it, but the rate will stay the same even though the principle of the loan has increased.

The conforming limit is $417,000; but there are some cities where the cap is set at $625,500. And there can be no cash out when rewriting the loan. Only rate and terms can be modified.
You can refinance more than one home, a second home or investment properties can also qualify.

While borrowers may move through the refinancing process at a faster rate under the re-tooled initiative, the breadth of the waivers on representations and warranties will largely determine the degree to which lenders and mortgage servicers are willing to make these riskier loans.

Those originating the loans have been skittish about refinancing higher-risk borrowers with the possibility a loan's government guarantees could be stripped if it sours or it is deemed defective. This is another plan from Washington—this time it's one which may actually help Americans. Seems like a long time coming, and it's not for everyone, but if you qualify get going ASAP.

Dane Hahn is a real estate professional in Florida and New Hampshire. Reach him at or by email at

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