New HARP Refinance Program

By Michael Shane

On October 25, 2011, President Obama by executive order implemented changes to the Home Affordable Refinance Program (HARP.). These changes were made to increase the amount of people that the HARP program can help to refinance their homes to lower mortgage rates. The new program is anticipated to help 1 million additional home owners.

Changes To The HARP Program

The revised HARP program is aimed at allowing homeowners that are more than 125% underwater with their mortgages to find refinancing options as the loan to value restrictions currently in place are expected to be removed. Other changes to the program as currently proposed include:

– Extension of program availability. The new program will extend HARP until December 31, 2013. At this time the program was scheduled toend in June of 2012.
– Reduction of closing cost.
– Change in the appraisal process. Many homes will not be required to have an appraisal if they qualify under the program. This decision was made to reduce the cost of the process, enabling more people to take advantage of the opportunity.
– The program will be managed by the independent Federal Housing Finance Agency.
– Eliminating lender liability for loan buybacks in the event of a borrower default.

The proposed changes of eliminating the loan to value restrictions and lender liability should help this program get the traction it has lacked over the past two years. Under the current program most lenders have been unwilling to lend to borrowers that qualify for the program. This is because if the borrower does not make their mortgage payments after the refinance the lender can be forced to buyback the loan at a loss. With the new proposed loan program the lender liability may be limited which should increase lending to more homeowners.

Qualifications For The Program

To qualify for the HARP program, consumers must:

  1. Be current on their mortgages with no late payments in the previous 6 months
  2. Have payments that exceed 31% of their income
  3. The loan must have been issued prior to June 2009. Any loan that was issued after this date will not qualify
  4. The loan must be backed by either Fannie Mae or Freddie Mac. If the mortgage is not backed by either of these entities, it does not qualify for the program.

Boosting The Economy Through These Loan Programs

The administration believes that if consumers can take advantage of the current low mortgage rates the economy will rebound. Home owners that feel secure about their homes are more willing to spend money outside of their homes. This increase in spending will then transform into job creation as product is needed to fill the consumers demand. Consumer confidence is one of the leading factors in a good economy.

The HARP program was first initiated in June 2009. At that time it was anticipated to help 4-5 million households refinance into lower interest rate mortgages. However, the program was very hard to qualify for, and as of September 2011, only a little over 800,000 home owners have been helped by the loan programs. The new initiatives taken by the administration was done with the hopes of significantly increasing that number before the program ends.

Michael Shane