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FHFA Revamps HARP to Help Struggling Homeowners

After years of low popular interest in restrictive homeowner financing assistance programs, the Federal Housing Finance Agency (FHFA) announced today that it will make the Home Affordable Refinance Program (HARP) available to more distressed homeowners by removing the current 125% loan-to-value cap for fixed-rate mortgages backed by Fannie Mae and Freddie Mac.

This means that some homeowners, who owe significantly more than the market value of their owns but are still current on their

home loans, will now be able to refinance for lower interest rates.  Called HARP Phase II, the program enhancements include reducing certain fees, eliminating the need for a new property appraisal if the FHFA has a reliable automated valuation model estimate, and extending HARP until the end of 2013.  The new federal guidelines for the HARP should be available to mortgage lenders and servicers by November 15, 2012.

 The basic eligibility requirements for an enhanced HARP loan are as follows:

  • Existing mortgage loan must be owned or guaranteed by Fannie Mae or Freddie Mac.
  • Existing mortgage loan must have been sold to Fannie Mae or Freddie Mac before June 1, 2009.
  • Existing mortgage loan cannot have been refinanced under HARP previously (except for Fannie Mae loans refinanced between March and May 2009).
  • Current loan-to-value (LTV) ratio must be more than 80%.
  • Existing mortgage loan must be current, with no late payments in the past six months, and no more than one late payment in the past 12 months.
This new program appears to be another last-ditch effort by the Federal government to help prop up the beleaguered Fannie Mae and Freddie Mac.  With both government-sponsored enterprises (GSE) still taking tens of billions of dollars in losses from soured mortgages, this program attempts to shift some of the financial burden onto yet another Federal government agency.Since bad mortgages are a political hot-potato, FHFA will only accept loans from the highest quality borrowers, those who have steadfastly weathered the current financial crisis and on principal alone, refused to succumb to the temptation to strategically default on their mortgage obligations.  The homeowners would have to demonstrate a high existing determination to repay the mortgage by keeping all payments current.
So, what does this mean for distressed homeowners?  While this program does open up refinancing opportunities which can lower the mortgage interest rate, it's quite limited to only those who haven't missed payments.  In essence, this program tries to reward those homeowners who have stoicly endured in tough times and proven themselves to be low-risk borrowers.  Still, even with the reduced fees, it's uncertain whether the potential reduction in mortgage interest rate will produce any actual monthly savings.  The refinancing fees may totally off-set any interest savings.  If you think you want to give this program a try, check with your mortgage broker around the end of November 2011 to see if it makes sense.
For additional information about eligibility requirements:  HARP Phase II data sheet.

Michael Cheng