HARP 2 – A refinance plan that might work?

HARP 2 is a revision of the Home Affordable Refinance Program (HARP), whose original goal was to allow homeowners to refinance their loans, even if they owed more than their homes were currently worth. HARP was introduced in 2009, and it was designed to help homeowners with mortgages owned by Fannie Mae or Freddie Mac. The program let borrowers refinance at up to 125 percent of their homes' current values. For example, under HARP, if you owed $125,000 on a house that was now worth $100,000, you could qualify for a HARP refi, because your loan was 125 percent of the home's value. But if you owed more than 125 percent of the home's value, you were out of luck. For most Californians, we were those described as out of luck.

However, the 125 percent loan-to-value limit has been eliminated under HARP 2. Under new rules in HARP 2 there is no loan-to-value limit on HARP refis -- at least, for borrowers who have fixed-rate mortgages.

The elimination of the loan-to-value limit is the biggest change under HARP 2. Here is a summary of HARP 2's guidelines:
•The program is for borrowers whose mortgages are owned by Fannie Mae or Freddie Mac, and who got their loans before May 2009. ***loan lookup at: http://www.makinghomeaffordable.gov/get-assistance/loan-look-up/Pages/default.aspx
•HARP had been scheduled to expire at the end June 2012; HARP 2 extends the expiration to the end of 2013.
•There is no loan-to-value cap for borrowers who now have fixed-rate mortgages.
•For borrowers with ARMs, the loan-to-value cap remains 105 percent.
•Borrowers can qualify for HARP 2 refis if they have paid on time for the last six months and have no more than one 30-day late payment in the last 12 months. Originally, HARP didn't allow any delinquencies in the last 12 months.
•Fees have been reduced. Lenders are fond of adding fees to loans that have an added amount of risk. Fannie and Freddie call these fees "loan level price adjustments," and the charges easily can climb to 2 percent of the loan amount on HARP refis. Under HARP 2, the fees are reduced to zero percent on loans for 20 years or fewer, and 0.75 percent for mortgages for more than 20 years and for ARMs.

The new program, in many cases, will virtually eliminate the risk that lenders will have to pay for losses on either the existing or the refinanced loan under HARP 2. This could be a big incentive for lenders to refinance loans, especially ones they already own.

But there are still many questions about the program, such as what interest rates banks will charge, whether they will impose additional fees or underwriting requirements beyond what Fannie and Freddie require and whether investors will be willing to buy securities backed by these new HARP 2 loans in the secondary mortgage market.

While borrowers will clearly benefit, the losers will be investors who own the guaranteed loans that are refinanced. They will be repaid, but will have to reinvest their proceeds, probably at a lower rate. These investors include Fannie and Freddie, the U.S. Treasury and the Federal Reserve - in other words, U.S. taxpayers. The hope is that taxpayers as a whole will benefit if homeowners who lower their monthly payments under the program spend some of their savings (thus boosting the economy) and become more likely to stay in their underwater homes and not default. (***For those considering a refi please keep in mind that a refi removes the non-recourse protection that their original purchase money loan provides in the event of a foreclosure. In other words, the bank can pursue a deficiency judgement after a foreclosure on a borrower that participates in any refinance so please make sure you weigh your future circumstances and likelihood of being able to stay in the home long-term prior to participating in a refinance and consult an attorney)

As Realtors® we obviously don’t receive any direct benefit from HARP2. But we continue to feel that by “helping first” we may someday be remembered when your real estate needs require the services of a trusted professional. We are happy to field questions and assist in any way possible. Please contact us if there’s something that we may do for you.