President Obama just released the details of his new refinance program HARP 2.0 (Home Affordable Refinance Program) to help upside down homeowners. It is great news for homeowners, because there is NO appraisal required to qualify for this revised program, so this means homeowners will now be able to refinance no matter how upside down they are on their home. On the original HARP program released in 2009, a home owner could only refinance to 105% in most cases. There are a few other requirements to meet to qualify for this new refinance program, so here is what you need to know.
What is HARP?
The Obama administration rolled out HARP in 2009 to refinance borrowers whose loans were backed by Fannie Mae and Freddie Mac and who were current on their payments. The idea was simple: If you were making your payments on time but didn’t have enough equity to refinance, you would be able to lower your rate without having to pay down your mortgage balance or take out mortgage insurance.
Initially, the program was limited to borrowers who owed between 80% and 105% the value of their homes. In mid 2009, the program was opened to borrowers who owed up to 125% the value of their homes. But either bad appraisals killed too many deals, or most lenders did not participate in the program to 125%, so overall the program was not a success. But HARP 2.0 has removed the appraisal requirement, so this should help qualify many more upside down homeowners to be able to refinance.
Who Qualifies for HARP 2.0?
If you can answer “YES” to the following 4 questions then you meet the requirements to qualify for this program.
1. Does Fannie Mae or Freddie Mac own your mortgage?
Not many people know if Fannie Mae or Freddie Mac owns their mortgage. Even if your current mortgage holder is Chase, Citi or B of A for example, there is a good chance your loan was probably sold to Fannie or Freddie originally before it was sold to your current mortgage holder. I can check to verify if Fannie or Freddie owns your mortgage, all I need is your property address and then I can run it through Fannie or Freddies system and let you know if either owns your mortgage.
2. Have you paid your mortgage on time in the past 6 months?
This new refinance program requires that you have not been late on your mortgage in the past 6 months, and only allows one mortgage late in the past 12 months. *A mortgage late, means you were more than 30 days delinquent on a monthly payment.
3. Is your current mortgage less than $417k?
This is the maximum loan amount that will be allowed to qualify for this new refinance program.
4. Did your current mortgage close before June 1st 2009?
In order to qualify for this new program, the last refinance you did on your existing mortgage had to be prior to June 1st 2009, or you bought your home prior to June 1st 2009 and you have never refinanced since buying.
Frequently Asked Questions about HARP 2.0
Here are the most frequently asked questions, along with answers, that everyone has in regards to this new refinance HARP 2.0 program.
1. What if I owe $400k, but my property value is $325K
That’s ok, because there is NO appraisal requirement on HARP 2.0, it does not matter what your home is worth!
2. What if I have a 2nd mortgage?
That’s ok too, according to the big 4 banks (Wells, B of A, Citi & Chase) who own most of the 2nd mortgages in the US, they said they will allow 2nds to be subordinated under this new program. So you will still be eligible even if you have a current 2nd mortgage that is over the value of your home.
3. What will interest rates be for HARP 2.0?
As the lenders are not set up to take applications yet, we don’t know exactly what rates will be. But I will venture to say they will be between 4%-4.5% depending on credit scores.
4. What if my new loan is over 80% of the value of my home, will the lender require mortgage insurance?
No, as there is NO appraisal requirement, there will be NO mortgage insurance required on the new loan. *Your new loan will NOT require mortgage insurance “PMI”, as long as your current loan also does NOT have mortgage insurance.
5. What if I currently have mortgage insurance?
If you have mortgage insurance on your current loan, the mortgage insurance will automatically be transferred to the new loan. Banks have also announced that they will transfer over the mortgage insurance PMI in most cases.
6. When will Lenders start accepting applications?
Some banks have said that they could begin taking applications as soon as December 1st, as they are currently getting the program set up in their systems. I will let you know when loans can be submitted under this new program.
7. What else is being done to lower homeowner costs?
Another change involves fees that Fannie and Freddie charge banks for borrowers with lower credit scores. For example, Fannie and Freddie have agreed to waive those fees for borrowers who refinance into loans with a shorter term, such as a 20 or 15-year mortgage. They also said there will be reduced fees for 30 year mortgages, which will translate to lower rates.
8. What if Fannie or Freddie don’t own my loan—can I refinance through this program?
Unfortunately No. That’s a major limitation, of course, because “jumbo” mortgages aren’t held by Fannie and Freddie, and many of the most underwater subprime mortgages are in privately held mortgage securities that weren’t issued by Fannie and Freddie.
Its not Perfect, but HARP 2.0 will help more people refinance
This new HARP 2.0 program is not perfect by any means, and it does not help everyone. But the Federal Housing Finance Agency estimates that another 800,000 to 1 million borrowers could refinance through HARP 2.0. As you can see below for example, refinancing since 2010 has been extremely muted in CA among borrowers with credit scores lower than 680, compare this to borrowers with scores even over 720. So this program is especially going to help those homeowners with lower credit scores.
Overall I think this program is probably one of the better ones initiated by this administration so far to aid the housing market. I believe this new program will allow lots of homeowners to be able to drop their interest rate from over 6% down to rates probably in the mid 4% range, and save on average over $200 a month.
If you have any questions in regards to this program, or if you know someone this program could help, please feel free to contact me directly at 858-200-9602 or forward this information on them.