The Obama administration recently announced changes to the Home Affordable Refinance Program (HARP). These changes will permit more borrowers to take advantage of the HARP program in order to refinance their upside-down mortgages to more favorable rates and terms. Las Vegas homeowners should reap the benefit of these new guidelines because of the great number of homeowners who are significantly upside-down. These changes will become effective December 1, 2011, though it may take lenders an additional period of time to roll-out the changes to their existing programs.
There are two significant adjustments that will directly impact homeowners attempting to refinance:
- The cap on the loan-to-value (LTV) ratio will be lifted. Previously under the HARP program, borrowers wishing to refinance were limited to a maximum loan-to-value ratio of 125%. For example, under the old HARP guidelines, a borrower whose home was worth $100,000 could not refinance a mortgage of more than $125,000. Since many Nevada homeowners are more than 25% upside-down, they did not qualify to refinance their home under the old HARP guidelines. However, under the new guidelines, there is no cap on this ratio. This should allow a significant number of borrowers who were previously denied access to HARP, the ability to refinance their upside-down loans.
- The new guidelines will eliminate or reduce many of the risk-based rate premiums for borrowers who would like to shorten the term of their current loan. Previously, these premiums would translate to higher rates for borrowers attempting to refinance through HARP, based primarily on the credit score of the borrower and the loan-to-value of the mortgage. These higher rates made refinancing through HARP less attractive for many who qualified. The new guidelines will eliminate or reduce these premiums on shorter term mortgages, such as a 15 year mortgage. One of the goals of the new HARP program is to alleviate the problem of upside down mortgages by enticing borrowers to pay down the principle balance of their loan more rapidly through the use of shorter term mortgages. Because rates are so low, many homeowners may be able to move to a shorter term loan, thus reducing the time they will be upside-down, while still keeping payments roughly the same, or even lowering them.
Borrowers wishing to qualify under the new HARP program will at a minimum need to meet the following criteria:
- The mortgage to be refinanced must be held by either Fannie Mae or Freddie Mac. To check if a mortgage is held by one of these entities borrowers can go to:
- Fannie Mae: http://www.FannieMae.com/loanlookup/ or call 1-800-7FANNIE
- Freddie Mac: https://ww3.FreddieMac.com/corporate/ or call 1-800-FREDDIE
- Borrowers must be current in their payments, with no 30-day mortgage lates over the last 6 months, and a maximum of 1 over the last 12 months.
- The current loan-to-value of the home must be greater than 80%. Thus, a homeowner with a home valued at $100,000, must owe at least $80,000 on their mortgage to qualify.
In addition to these guidelines, lenders will still require borrowers to meet other traditional underwriting criteria with regard to their income, debt, credit, assets and other factors. As this program is rolled out, more details will become available as to how lenders will actually implement these new guidelines. We will update this information as it becomes available. Please contact us with any questions.