Will HARP 2.0 Bridge the Refinancing Gap for Homeowners and Lenders?
ByEconomists are hopeful that an effective mortgage refinance program that extends relief to distressed homeowners who are stuck with underwater mortgages could help the country finally bury the housing crisis. Although the Obama administration announced the latest version of Home Affordable Refinance Program a few months ago. The details of this new version called HARP 2.0 are just being released to mortgage originators.
There has been a loan program in place, HARP, under which lenders were able to refinance underwater homeowners. The original HARP mortgage program theoretically allowed a homeowner with a loan held by Fannie Mae or Freddie Mac to refinance a current mortgage that was up to 125% of the home’s current value. However, even though Fannie and Freddie allowed lenders to go up to 125%, most lenders would impose their own restrictions that held their maximum loan amounts to 105% of a home’s value. Historically, lenders have only allowed refinancing up to 90 or 95% of a home’s value.
Basically, the new version of HARP 2.0 has waived all loan to value requirementswill allow homeowners to refinance without regard to income, credit score or home value as long as the current mortgage is larger than 80% of the home’s value. Only those loans originated before May 31, 2009, will qualify. There has been much discussion about what rates will be offered under this program. Although the pricing is not supposed to be risk-based, the rates could be higher than for conventional refinances. In the past 125 loans and bad credit house loans carried higher interest rates.
Considering that homeowners who can take advantage of this program will likely not get another chance to refinance an upside down mortgage and given that neither Fannie nor Freddie will expect lenders to pay back loans that go into default, the new HARP loans should help lenders retain their servicing portfolios, which in turn will encourage them to offer these loans. Unfortunately, loans that were not sold to or guaranteed by Fannie Mae or Freddie Mac will not qualify, which leaves out many of the loans that really would benefit from refinancing like jumbo loans and the negatively amortizing loans and other creative loan products that were so popular with World Savings, Washington Mutual and Countrywide, as well as others.
There is also confusion as to whether or not homeowners with second mortgage loans and HELOCS will be able to take advantage of this program. To find out if your loan is owned or guaranteed by Fannie Mae or Freddie Mac, go online to either Fannie Mae HARP or Freddie Mac Home Affordable Refinance. This refinance program is for primary residences, second homes and investment properties. To qualify, homeowners cannot have had a mortgage late in the past 12 months and the new payment must be either more affordable or more stable than the current loan. We assume that a homeowner may include closing costs in the new loan amount but may not receive any cash back from the refinance. As of December 1st, HARP loans can be originated and the Obama administration says the program will end December 31, 2013.
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