New Home Affordable Refinance Program (HARP II)

Yesterday, Oct 24, 2011, President Obama announced changes to the Making Home Affordable Refinance Program (HARP) so that a person can refinance a first mortgage that is upside-down.

That mortgage must be owned by Fannie Mae or Freddie Mac on or before May 31,2009.

The changes announced yesterday also extend the program to the end of 2013, and will allow a refinance of a first mortgage with no cap on the loan-to-value (LTV) ratio.

Another important enhancement is the elimination of certain risk-based fees for borrowers who choose a shorter term (see examples below) and lowering fees for other borrowers.

No lenders are offering the program yet, although some major lenders have stated they are working on it’s release.

The requirements released to date are as follows:

1. 1st mortgage owned by Fannie Mae or Freddie Mac

2. No late mortgage payments within the previous 6 months

3. No more than 1 late mortgage payment within the past 12 months

4. 2nd mortgages must agree to go back in 2nd position

5. The loan cannot have been refinanced previously under HARP unless it was between March-May of 2009.

6. Condominiums continue to be eligible under the program.

Lenders are expected to receive guidelines, including implementation dates by November 15, 2011.

Some of the enhancements may be available as early as December 1, 2011,

However, availability of the loan for LTV's greater than 125 is not expected until after December 31, 2011.

The FHFA announcement can be found here:

http://www.fhfa.gov/webfiles/22721/HARP%20release%20102411%20Final.pdf

The program is only one of many refinancing options available to homeowners. It is unique in that it enables borrowers who owe more than the home is worth to take advantage of low interest rates and other refinancing benefits.

Examples*

Assume a homeowner currently has a mortgage on which he or she owes $200,000 and
has an interest rate of 6.5 percent – a monthly payment of $1264. If the house is worth $160,000, the homeowner has a current loan-to-value (LTV) ratio of 125 percent.

If this borrower refinanced into a 30-year fixed-rate mortgage with an interest rate of 4.5 percent, the monthly payment would decline to $1013. But, by refinancing into a 30-year loan, the borrower’s loan balance will not reach $160,000 for ten full years.

If the borrower chose a 20-year loan term at a rate of 4.25 percent (mortgage rates tend to be less for shorter term mortgages), the monthly payment would be $1238 ($26 less than the borrower currently pays) and the borrower’s loan balance would reach $160,000 in 5.5 years.

If this same borrower refinanced into a 15 year mortgage, assuming an interest rate of 3.75 percent, the monthly payment would be $1454 ($190 more than the current payment), but the loan balance would be below $160,000 in a bit more than 3.5 years.

*These examples are purely illustrative and are not meant to represent interest rates borrowers should expect to pay. They do show that some HARP-eligible borrowers, depending on their circumstances and priorities, may benefit from a shorter term mortgage.