HARP 2.0 reduces fees and representations and warranties, expands borrower eligibility
The Home Affordable Refinance Program (HARP), a federal program designed to encourage refinances of underwater homeowners, announced changes recently that are intended to open the program to more homeowners. While the program does not reduce principal for underwater homeowners, it allows them to access lower interest rates and lower monthly payments. One in four mortgages in the Chicago region is underwater.
Fannie Mae and Freddie Mac released guidance on the specifics of the program last week. There has been confusion about the changes to the program and who is eligible for HARP under the revised rules, so the Regional Home Ownership Preservation Initiative put together this fact sheet to clarify the new changes.
Who is eligible?
• Borrowers with loans sold to Fannie Mae and Freddie Mac on or before May 31, 2009.
• Borrowers with loan-to-value ratios above 80 percent; there is no upper limit on loan-to-value (LTV) ratios if the borrower’s new loan under HARP is a fixed-rate mortgage(previously, borrowers with LTV ratios above 125 percent were ineligible for HARP). If the borrower refinances into an adjustable-rate mortgage, the LTV cannot be higher than 105 percent. If the borrower’s fixed-rate loan is backed by Fannie Mae and has a loan term longer than 30 years, the LTV cannot be higher than 105 percent as well.
• Borrowers must be current on their mortgage payments with no late payment in the past six months and no more than one late payment in the past twelve months.
• Only mortgages on primary residences are eligible for HARP 2.0.
• The requirement that a borrower wait a certain amount of time following a bankruptcy or a foreclosure has been waived.
• The Federal Housing Finance Administration refrained from projecting how many homeowners would be helped by the program, but roughly estimated that the changes could double program participation (about 894,000 borrowers have refinanced through HARP as of August 31, 2011).
How has the program design been changed?
• Many representations and warranties—the assurances that lenders make that the loan has been properly underwritten—have been eliminated. One exception is that, according to the Freddie Mac guidance, many of the representations and warranties on the original loan are retained if a borrower seeks out a new lender for the HARP loan. Lenders must ensure that data in the loan file is complete and not fraudulent and that GSE guidelines have been followed in order to waive representations and warranties.
• Delivery fees for loans with terms of 20 years or less have been eliminated, while fees on loans with longer terms have been lowered to 0.75 percent.
• Lenders have the option to use a property value estimate generated by the GSEs’ proprietary valuation models instead of seeking a new appraisal. If lenders conduct a new appraisal, they are responsible for the representations and warranties regarding the value of the property; lenders do not have to vouch for the property value estimate if they do not use an appraisal.
• The end date for HARP was extended until December 31, 2013.
Resources for homeowners
• To find out if a loan is owned by Fannie Mae or Freddie Mac, homeowners can visit www.fanniemae.com/loanlookup or www.freddiemac.com/mymortgage. Homeowners can also call 800-7FANNIE or 800-FREDDIE.