BLOG: HARPing About Mortgages is OK!

I can now refinance and my bank does not care about my property value?!  They may even waive the appraisal requirement ... WHAT?!

That’s right, the new HARP 2 program allows you to refinance your mortgage even if you are way underwater.  

There has been a lot of talk lately about the 2011 Home Affordable Refinance Program (HARP). HARP is also known as the Making Home Affordable program, DU Refi Plus and the Obama Refi Plan.

The original HARP program was introduced by the federal Finance Housing Agency in November of 2011. This program gives borrowers with conforming and high balance loans – up to $625,500 depending on county – who are underwater with their mortgage balance (given the decreased value of their home), the opportunity to refinance their mortgage loan and reduce their mortgage payments.

The HARP 1 program allows loans up to 125 percent loan-to-value, which means that if your home is valued at $300,000 and your loan balance is $375,000, you may qualify for this program. The caveat is that your loan has to have been owned by Fannie Mae or Freddie Mac since May of 2009. Sometimes the property appraisal is even waived if the agencies confirm with their own system that the property value is not inflated. 

The idea for this program was really simple. The mortgage servicers have been inundated with loan modification requests during this recession period. The requests were coming in with mortgages already delinquent. It has been a common tactic used by loan modification companies to advise their clients to miss one or two payments to get the attention of the servicing lender and obtain a loan modification.

The danger with doing this is that if the loan modification did not go through, the borrower would find themselves with accumulated mortgage payments plus delinquent mortgage charges, not to mention an adverse effect on their credit.

Even if the loan modification was approved, the borrower’s credit would be negatively affected by the credit reporting of the loan modification – and that’s even if the borrowers did not miss a mortgage payment to obtain the loan modification. If the borrowers were behind on their mortgage, that means Fannie and Freddie have a delinquent loan to service. 

When HARP 1 initially came out, it required that the borrowers have no late payments on their mortgage in the past 12 months. This dramatically decreased the number of delinquent loan borrowers benefiting from a loan modification-type loan. This program is set to expire in June.

But don’t worry. The new-and-improved HARP 2 program is starting this month and is not set to expire until December 2013. This means Fannie and Freddie are willing to manage to do a loan modification and will continue to service a loan that is current. This is a win–win.

The HARP 2 program no longer has a loan-to-value limitation except for adjustable rate mortgages (ARMs), which are still being limited to 105 percent loan-to-value. The new HARP 2 program also allows for one mortgage late in the last 12 months as long as the mortgage has been current in the last six months. This is still benefiting the loan servicer and the borrower.

When you think about it, why worry about the property value if all they are doing is giving the borrower who has been making their current mortgage payments the ability to make lower monthly payments?

Just as it is true for purchasing a home….location, location, location, the mortgage lender cares about collateral, collateral, collateral. The HARP 1 program has been readily available, but the new HARP 2 program is presenting a challenge to lenders. No lender wants to lend money with complete disregard to the property values even if all they are doing is lowering the borrower’s monthly payment. 

At this time, mortgage bankers find themselves waiting for their warehouse lines to allow them to fund these loans and warehouse banks are waiting to make sure that these loans will be easily purchased by Fannie and Freddie. When they do, the floodgates will be opened and many people will be able to benefit from this program. 

Happy Mortgage Hunting!