New help for underwater borrowers
Al Heavens, The Philadelphia Inquirer, April 20, 2012, link
|As of March 17, HARP 2.0 has been in place to help keep homeowners above water. (Mike Kemp, Getty Images / April 13, 2012)|
HARP 2.0 — HARP stands for Home Affordable Refinance Program — is being billed as an improvement over the 3-year-old version that just about everyone acknowledges didn’t help anyone.
The reason for that failure: The original program had limits on loan-to-value ratio, the amount of a mortgage as a percentage of the appraised value of a property. If the balance of a mortgage exceeded the appraised value — say, $300,000 versus $150,000 — the borrower wasn’t allowed to refinance.
Recognizing that none of the borrowers the program was intended to help would be able to qualify, the limits were dropped when the new version of HARP was heralded in October.
Does that mean all lenders have agreed to no limits?
“I have lenders that have limited the loan-to-values. Some have even differentiated between attached and detached homes,” said mortgage broker Fred Glick, who has launched a blog, harp2.com, to update consumers. “They still are limiting what they will do” with loan-to-value ratios of 150 percent and no more.
“All in all, it is a great way to get people’s rates down in spite of low values. This will decrease the supply of homes for sale and increase values over the long run.”
As with all these programs, the months since HARP 2.0 was announced have been spent trying to get lenders on board — no easy task since Fannie and Freddie loans are pooled as mortgage-backed securities that are owned by many investors. All the investors need to agree before borrowers can apply to reduce monthly payments to today’s low fixed interest rates, which remained under 4 percent for many months but now are beginning to increase as bond yields rise in an apparently improving economy.
As of March 17, HARP 2.0 has been in place to help keep homeowners above water. About 4 million Fannie Mae and Freddie Mac borrowers nationwide owe more on their mortgages than their homes are worth.
Those links also can be reached through makinghomeaffordable.gov, which has details about HARP 2.0 and other information.
Underwater loans might also be eligible to refinance under provisions of the recent National Mortgage Settlement. That applies to loans neither owned by Freddie or Fannie nor insured by the Federal Housing Administration, which has its own streamlined refinancing under a program announced in January. Details of that settlement are being worked out, and eligible borrowers will be notified by the five participating lenders — Wells Fargo, Bank of America, JPMorgan Chase, Ally Financial and Citibank — at some point.
To be eligible for HARP, homeowners must be current on their mortgage. That means paid in full up to date, with no late payments in the past six months and only one in the past 12. They also need to show that they can afford the new payments gained through refinancing without any trouble.
Borrowers must have closed on their current mortgage on or before May 31, 2009, and cannot have refinanced through HARP before. In addition, mortgages must fall under current “conforming-loan limits,” which vary by region.
One thing both Fannie and Freddie want to see is whether borrowers refinance to loans with terms shorter than 30 years. They call this “movement to a more stable product.”
Borrowers with an interest-only loan will be urged to refinance to a mortgage product that provides amortization of principal and accumulation of equity in the property.
Those who have an adjustable-rate mortgage will be encouraged to refinance to a fixed-rate loan that eliminates the potential for payment shock, or to an adjustable with an initial fixed period of five years or more and equal to or greater than the existing mortgage.
Homeowners with a 30-year fixed-rate mortgage will be advised to refinance to a 15-, 20-, or 25-year fixed that offers, in Fannie Mae’s words, accelerated amortization of principal and equity-building. But borrowers won’t be allowed to cash out equity under this refinancing “except for closing costs and certain allowances to cover items such as association fees, property tax bills, insurance costs, and rounding adjustments.”
Plus, borrowers may not satisfy subordinate financing in the form of a home-equity line of credit or a closed-end second mortgage with the proceeds of the refinance mortgage.
Balloon mortgages and convertible adjustable-rate mortgages are eligible for HARP 2.0 if the conditional right to refinance the balloon or convert the ARM was exercised by the borrower and “redelivered” to Fannie Mae before June 1, 2009.
To determine whether Fannie Mae or Freddie Mac owns your mortgage, visit fanniemae.com/loanlookup and freddiemac.com/mymortgage.
To access Fannie Mae’s frequently asked questions file, go to goo.gl/pN54x.
Many of the rules and regulations outlined in the latest information from Fannie and Freddie are far beyond the understanding of the typical homeowner, and, as the government warns, scam artists are already hovering above borrowers, waiting to pounce. For information about mortgage-assistance-relief scams, visit ftc.gov.
Some underwater homeowners will qualify for assistance under the mortgage settlement. The Center for Responsible Lending has a downloadable consumer’s guide for that program at goo.gl/2FZKM.