HARP 2.0: An Exploration Into the Gov's Latest Refinance Program; Good or Bad?

Well, this is my first blog on the Danvers Patch and I figured what better way to kick things off! Let's talk about a program to help homeowners with mortgages that are underwater or close to being underwater.

This is the governments second or third attempt, depending on whether you classify their first attempt back in 2009 as an attempt at all! That original refinance program didn't have the muscle or know how to really assist those that needed it, so, the Obama administration introduces HARP (Home Affordable Refinance Program) back in the later part of 2009 and early 2010. This was really a program only designed for those that had mortgages owned by Fannie Mae (I'll elaborate more in a bit!) "But Rick, Lender ABC is the bank I pay my monthly payment to, Fannie Mae doesn't own my mortgage!!" people would always say!

Well, here's a little mortgage 101 for those that are interested! Lets say you send your hard earned money each month to Bank of America or Wells Fargo to pay that all important mortgage. Even though those two lenders are BANKS, they may not OWN your mortgage they are simply SERVICING your loan and Fannie Mae pays them a fee to do so! Your mortgage, once it's originated and closed is then assigned to a POOL of mortgages sometimes totalling hundreds of millions of dollars, then that pool is sold on the secondary market as what we in the mortgage industry call a MBS or Mortgage Backed Security. MOST of those MBS are sold to FANNIE MAE and some to FREDDIE MAC to free up capital at the lender that originated your mortgage so they can originate more mortgages! Remember, the purpose of the creation of Fannie Mae back in 1934 was to provide an outlet for lenders to sell their loans to free up new money to make new loans! That's a whole other blog, the creation and implementation of the various GSE's (Fannie Mae, Freddie Mac, Ginnie Mae) is a story for another day!

Back to BOA and Wells Fargo. "Hey Rick, how do I find out if Fannie Mae owns my mortgage?" That's pretty easy, you can call the customer service number on your mortgage statement. They'll have the Fannie Mae/Freddie Mac loan number in their file and will be able to tell you if it's one of the Fannie Mae/Freddie Mac MBS's. You could also use the website I'll give you at the end of this blog!

OK, you've figured out that your loan is owned by Fannie Mae/Freddie Mac and you now want to take part in this program to reduce your rate, save some money, or even lower your term. Now what do you do? Well first we need to ask a few VERY important questions about your mortgage, they are:

1. Did you last Purchase or Refinance your FANNIE MAE owned mortgage PRIOR to May 31st 2009?

2. Is your current mortgage free of Private Mortgage Insurance (PMI)?

Here's where it can get a LITTLE confusing. If you answer "NO" to Question 1 then you do not qualify for the HARP 2.0 program. A simple example of this would be any borrower that has refinanced or purchased their home after 5/31/2009. Now, Question 2 is the one we're finding is creating the most questions. We are finding that a lot of applicants have PMI but it's in the form of LENDER PAID MORTGAGE INSURANCE (LPMI). This is and was a very popular loan program. It essentially gives the borrower a loan without a "monthly PMI payment" in exchange for a slightly higher rate. That means you wont see a " PMI Payment" on your monthly statement, but it doesn't mean you don't have PMI! This type of loan program almost ALWAYS makes the home qualification process a little easier for some borrowers. The borrower selects a slightly higher rate without having the monthly PMI payment, and bingo they have a lower OVERALL monthly payment! Confused? Give me a call and I'll explain!

But, it does mean there is a Mortgage Insurance Certificate on the loan and that is something we need to know about prior to submitting an application. It doesn't mean you're automatically out of the game, but we do have to research that aspect of your mortgage in greater detail! Alright! Let's assume that YOU have a mortgage prior to 5/31/2009 and YOU are NOT paying PMI, what's so great about this program you might be asking yourself! Well, here's where this program can be advantageous! Check out some of these key features:

• Unlimited Loan To Value and Combined Loan to Value (LTV/CLTV) on 1 Unit Owner Occupied Single Family homes. HUH??? Your mortgage could be TOTALLY UNDERWATER!!! In other words, you need a SNORKEL to find it!
• 125% Loan To Value / Unlimited Combined Loan to Value on 1 Unit Owner Occupied Condo's.....still need that SNORKEL!
• No rate adjustments for Credit Score or Loan To Value for 20 Year or Less! This is the government encouraging people to refinance to lower terms to promote EQUITY GROWTH in our housing market!  
• High Probability of an APPRAISAL WAIVER (no appraisal required).
• Minimum Credit Score of 620 Investment Properties are allowed
• Reduced Lender Underwriting Fee in some cases Loans with PMI are allowed under under certain provisions
• Income requirements, on a case by case basis, could be less strict
• If you have a 2nd mortgage we will simply RE-SUBORDINATE that mortgage with the authorization of the existing lender.

Sound all well and good? "Hey Rick, what are those websites you mentioned to help me locate my loan?" you're now thinking! Well, here they are:

Fannie Mae: http://www.fanniemae.com/loanlookup

Freddie Mac:  https://ww3.freddiemac.com/corporate 

As with any residential real estate transaction these days, nothing is ever etched in stone! The lenders are becoming more and more detail orientated, so it's very important to provide whatever documentation the mortgage professional asks you for in a timely fashion! Be patient and never take a real estate transaction personally, it's business and sometimes it can be a little frustrating, but believe me when I tell you; any frustration you feel we feel 100 Times more!!!

I see some great potential with this program and I think it will help out a great deal of homeowners, however, there is a large number of individuals who obtained mortgages prior to 5/31/2009 that are NOT owned by Fannie Mae or Freddie Mac. Those homeowners do not qualify for this particular program, but there could be some light at the end of the tunnel for some of them. The recent Attorney General Lawsuit that was settled with the "Big 5 Lenders" (BOA, Wells Fargo, Citi, GMAC, and Chase) set aside billions of dollars to help those that are underwater and are not currently with Fannie Mae/Freddie Mac. That's a story for another day!

Well, in a nutshell that is the HARP 2.0 Refinance program that just went live on March 17th. I hope you found this article to be helpful and if you have any questions at all please don't hesitate to give me a call. We can be found right in downtown Danvers. Go to the business directory, select browse, and type in Mortgage Assistance Company, LLC.

Thanks again for reading! Sincerely, Richard M. Bettencourt Jr., NMLS 7810