The government's HARP program, which allows underwater homeowners with Freddie Mac or Fannie Mae mortgages to refinance, offers another benefit for divorced or divorcing spouses. Here's the deal.
Until HARP II, underwater homeowners who wanted to go their separate ways were out of luck. While divorce court judges have no problem assigning homes and mortgage payments to one spouse or another, mortgage lenders are not nearly as accommodating. Lenders are not required to alter a home loan just because the borrowers don't wish to remain married. It makes little
sense for lenders to increase their risk by letting one party off the hook, and so they almost never do this.
The traditional way out has been a refinance, in which one former spouse must qualify for the new loan on his or her own. Once the mortgage crisis hit, however, underwater exes found themselves unable to refinance and unable to remove themselves from the mortgage, even if they no longer held title to the property.
That's changed. You can remove a borrower from the refinance loan with HARP.
For loans approved by automated underwriting systems (AUS), borrower(s) may be dropped as long as at least one of the original borrowers is obligated by the new loan.
If the loan must be underwritten manually, borrower(s) may also be removed as long as one of these conditions are met:
- The remaining borrower must prove that he or she has been paying the mortgage from his or her own funds for the past 12 months; or
- The remaining borrower(s) may qualify on his or her own as though taking out a new loan; or
- The borrower being removed has died.
You may be required to drop the deleted borrower from the property title.
In addition, if you have already replaced your ex with someone else, and you want to add this someone else to your home's title and your mortgage, you can. HARP guidelines allow new borrowers as long as at least one original borrower remains obligated by the refinance. You can even add a new non-occupant co-borrower. Verification of employment or income for the non-occupant co-borrower is not required, because that borrower's income and debts are not
Keep in mind that refinancing is just one part of a divorce -- you'll still need to divide assets and liabilities, and negative home equity is part of that picture. Don't undertake a HARP refinance at this stage without the advice of your divorce lawyer or accountant.