HARP 2.0 Mortgage Refinance Program: Help for Refinancing Underwater Mortgages

With the new rollout of the Home Affordable Refinance Program (HARP 2.0), underwater homeowners who previously found themselves ineligible can now refinance their homes to today’s low refinance interest rates. The key requirement in order to qualify is that your mortgage loan must be owned by Freddie Mac or Fannie Mae.

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Fannie Mae or Freddie Mac must own your home loan for you to qualify for HARP.

Source: Fannie Mae & Freddie Mac.

The conservator of Fannie and Freddie, the Federal Housing Finance Agency (FHFA) is hoping that the relaxed eligibility standards with the current evolution of HARP will help to stabilize the housing market and give a boost to the economy by helping homeowners secure a lower monthly payment, thereby freeing up cash resources. The FHFA regulates 14 other housing-related government-sponsored enterprises (GSEs) as well, which target specific borrowers and helps to make credit more available.

Approximately four million Fannie and Freddie borrowers are underwater, where they owe more on their mortgage than their homes are worth. According to CoreLogic, a data provider to mortgage underwriters, nearly 11 million homes are underwater, which accounts for 22.5 percent of all outstanding loans. About 2.4 million homeowners own less than five percent equity in their homes.

To meet this huge need, the FHFA has expanded the eligibility requirements for HARP 2.0 to include more homeowners and to help those who are in truly desperate situations. To encourage lenders and homeowners to get involved, despite the failure of the first HARP, several critical changes were made, helping millions refinance their underwater mortgages.

New HARP 2.0 Changes Allow More Homeowners to Refinance Underwater Mortgages

  1. Unlimited LTV Means No More Loan-to-Value Cap
    One of the major changes with HARP is the loan-to-value (LTV) cap has been removed. This means that HARP 2.0 can help homeowners refinance, regardless of how underwater they might be on their mortgage.

    Before, the LTV cap was 125 percent of the home’s current worth; however, this excluded homeowners who were severely upside-down on the loans. On March 19 an electronic approval system was put into place with the rollout of the new HARP 2.0 guidelines. The expectation was that lenders would apply these standards to all new HARP loan applications. The big surprise, and disappointment, is that some lenders are placing their own (stricter) guidelines to limit the LTV to the previous HARP 1.0 level or lower. Homeowners are encouraged to shop around to find a lender who will honor the unlimited LTV allowance, and there are many that are.

  2. Quick Tip: Credit Sesame now offers refinance options for underwater homeowners. Find out if you qualify for a HARP refinance.

  3. Limited Liability
    The FHFA has dropped lender liability to encourage lenders to offer HARP 2.0 mortgage products. By letting lenders off the hook if a loan under-performs, more lenders will be likely to offer assistance to homeowners.
  4. Lender Fees Are Cut
    The fees Freddie and Fannie traditionally charged for high-LTV loans have been significantly reduced, another incentive for lenders. The benefit for homeowners is that these savings will be passed on to them in the form of reduced fees. For those refinancing to 15- or 20-year loans, the fees will be mitigated even more.
  5. Income Requirements Relaxed
    Unless the monthly loan payment increases by 20 percent or more, lenders no longer have to show that borrowers have a “reasonable ability to pay.” This only applies to loans that are refinanced with the borrower’s current lenders through the manually underwritten Refi Plus system. If loan applications are processed under the automated Desktop Underwriter (DU) system, a debt-to-income (DTI) ratio of 45 percent will be set as an eligibility requirement.
  6. Credit Score Requirements Determined by Lenders
    The HARP 2.0 guidelines have no minimum credit score requirements; however, this means lenders are overlaying their own credit score requirements when approving HARP loans. This means there may be lenders out there who will overlook a score of less than 620, but they will be harder to locate.
  7. Late Payment and Bankruptcy Rules Relaxed
    If you’ve had a late payment on your mortgage in the last 12 months, but not in the last 6, you will no longer be ruled out for refinancing. The same goes for bankruptcy. Even a recent bankruptcy filing won’t negate your chances, whereas before, a person who had filed would have to wait years to refinance.
  8. Occupancy Requirement Relaxed
    Before, you could only refinance on the home that was your primary residence. Now, second homes and investment properties are included.
  9. Condominium Requirements Relaxed
    For condo owners, the HARP 2.0 does away with the requirement that no more than 10 percent of the units in a building be owned by one person, and that no more than 20 percent of the building’s occupants be behind on their Homeowner’s Association (HOA) dues. This conditioned a condo owner’s eligibility on the finances of his or her neighbor. These conditions have been removed.

Minimum Eligibility Requirements to Qualify for HARP 2.0

Homeowner’s will still have to meet certain requirements to receive a HARP 2.0 loan, but those have relaxed as well.

  1. The mortgage loan must be owned by Fannie Mae or Freddie Mac.
  2. The loan must have been sold to Fannie or Freddie on or before May 31, 2009.
  3. The loan cannot have been refinanced under HARP previously, unless it is a Fannie Mae loan that was refinanced under HARP from March through May 2009.
  4. The loan’s current LTV is greater than 80 percent. You cannot have more than 20 percent equity in your home or you will not be eligible for a HARP 2.0 refinance.
  5. At the time of application, you must be current on your mortgage payments. You may have only one 30-day late payment on your mortgage in the last 12 months, but not within the last six.
  6. The refinance must improve the long-term stability and affordability of the loan in one of four ways:
    • Reduce the size of the monthly payment
    • Change to a more stable loan product, such as moving from an adjustable-rate mortgage to a fixed-rate mortgage
    • Reduce the interest rate
    • Reduce the loan amortization term (moving to a shorter-term loan)
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