Mortgage Loan Compliance | Is The HARP Program Dead From Start

Today 11 million people, basically one in four homeowners with a mortgage owe more than their home is worth. These "underwater" borrowers have virtually no shot at refinancing.

The Obama administration is hoping at least 1 million of these borrowers will take advantage of its refinancing program under more lenient rules unveiled Monday. Homeowners who are current on their payments will be eligible to refinance no matter how much their home's value has dropped.

Still, it's unclear how many borrowers will benefit. Lenders will remain under no obligation to refinance a mortgage they hold.

The Federal Housing Finance Agency announced that it is making a series of changes to the Home Affordable Refinance Program (HARP). The changes are intended to allow even more underwater homeowners refinance under HARP. The biggest change is the elimination of the 125% Loan To Value ceiling on HARP loans. This means that theoretically, a borrower can refinance no matter how far they are underwater.

Some of the proposed changes include:

• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;

• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;

• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;

• Eliminating the need for a new property appraisal where there is a reliable AVM

• (automated valuation model) estimate provided by the Enterprises; and

• Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

Only those who have a job and are current on their Freddie Mac- or Fannie Mae-owned mortgages are eligible for the new program. Those who have already refinanced with HARP are not eligible.

Edward Demarco, the Acting Director of the FHFA commented:

"We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach. Building on the industry's experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets".

Fannie Mae and Freddie Mac will issue guidance on the HARP updates to lenders and servicers by November 15, 2011. At that time we should have additional clarity on the eligibility requirements for the new version of HARP. It is possible that these changes could take effect as soon as December 2011.

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