The government annouced changes to the HARP program (Home Affordable Refinance Program) on Monday. These changes were made to allow more homeowners to refinance more easily. The changes look like they will be agressive and will allow more homeowners to refinance that are currently unable to.
The biggest change is the elimination of the loan to value. The current HARP program had a limit of 125% of the appraised value and for many homeowners, that wasn't high enough. The new program is unlimited. However, it will depend on what the banks are willing to do.
What we have heard about the program is:
- Loan to value ceiling – the current limit of 125% will be erased and it will become unlimited.
- Appraisals – they may not be needed, however, automated value models may be used, which typically come in lower than most appraisals – but with the unlimited value, it may not matter.
- Fee reductions – some of the current fees charged based on loan to value and credit scores may be dropped or reduced.
- Documentation – some of the income and asset documentation may be reduced.
- Your loan must still be backed by Fannie or Freddie.
There are still several things that we don't know! Some of them are:
- Lender changes – currently the loan to value limit is 125%, however many banks lowered that requirement to 95-105%. We don't know if the banks will go with the unlimited values going forward.
- Mortgage insurance – the biggest issue my clients have had is the mortgage insurance. If you currently have mortgage insurance, the new rules may make it easier for you to refinance your home, but we don't know that for sure.
- Second mortgages – with the unlimited value rules, we don't know how second mortgage lenders will look at this. We still need to subordinate the second mortgage and many lenders were limiting how much they would allow to be subordinated.
This program is available for primary residences, second homes and investment properties. This did allow many people that have investment properties to refinance to a much lower interest rate, that should continue under the new program.
Fannie Mae or Freddie Mac must own your loan. If they do not own it, your mortgage is not eligible for this program. Both Fannie and Freddie have a website that allows you to search your address to see if the program may work for you. Once you know that, you need to contact a lender to see if you qualify. Each lender has different requirements and until we see the guidelines, we won't know what each lender will allow.
The changes will take place no earlier than December 1, 2011, however many of the changes may not be allowed until after January 1st, 2012. There will be more information released about this in the coming weeks and I'll update the information once we know more!