The second iteration of the Home Affordable Refinance Program, or HARP 2.0, was released on March 17, 2012. The adopted changes by Freddie Mac and Fannie May to HARP eliminate the more troublesome sticking points for homeowners whose mortgage balances exceed their property’s value. As in HARP 1.0, eligibility restrictions apply:
- Home loans must be backed by the government-sponsored enterprises (GSEs) Fannie Mae or Freddie Mac. Check with Fannie Mae and Freddie Mac before applying.
- Mortgages must have been sold to GSEs on or before May 31, 2009.
- Loan-to-value (LTV) ratio must exceed 80 percent
- Mortgages must be current, with no 30-day late payments in the last six months and no more than one in the last 7 months to one year prior to applying.
Second mortgages will be subordinated to the new first mortgage. However, with Freddie Mac loans, if the first loan’s balance does not exceed 80 percent of the home’s current value, and the total of the first and second mortgage balances doesn’t exceed 105 percent of the home’s current value, both mortgages can be consolidated into the new HARP refinance. Mortgages that were refinanced under the old HARP program are ineligible under the new program. The program is set to expire September 30, 2017.
HARP 2.0 Refinance Program: What’s Different?
One of the biggest roadblocks to the old HARP refinancing was the fact that many homeowners were required to work with their current lenders, and these lenders weren’t necessarily motivated to reduce rates on loans that were being paid as agreed. However, new HARP guidelines open up the program to many more borrowers and with far greater opportunities to compare their options with multiple lenders who are participating in the HARP program:
- Rentals and vacation homes can qualify. Additional fees apply.
- There is no limit on negative equity if you refinance into a fixed-rate loan.
- If you refinance into an adjustable-rate mortgage, your maximum LTV is 105 percent.
- Borrowers are not required to work with their current lender.
- Borrowers with lender-paid mortgage insurance may be eligible.
- No increase in mortgage insurance coverage is required; mortgage insurance coverage must be transferred to the new lender.
- As long as the new payment doesn’t increase by more than 20 percent, no property appraisal or income verification is needed.
- GSE foreclosure and bankruptcy restrictions are lifted.
- Loan pricing adjustments are capped at .75 percent for loans with terms exceeding 20 years, and zero for loans with terms of 20 years or less.
HARP 2.0: Potential Pitfalls
Every one of the government’s Making Home Affordable programs has worked differently in practice than it was expected to in theory, and mortgage lenders have tended to apply the GSE guidelines more conservatively than required HARP 2.0 appears to be evolving as well, and early applications have unearthed the following issues:
- Even though there are minimal loan pricing adjustments at the GSE end, lenders still have some uncertainty about investors’ willingness to purchase HARP 2.0 loans, and have priced that uncertainty into their refinance rates. It’s just as important to rate shop for HARP loans as it is for other mortgages.
- While there is no minimum credit score or maximum loan-to-value at the GSE level, many lenders are imposing their own more restrictive guidelines. It may be difficult for those with condominiums in the Sun Belt, for example, to refinance them at LTVs exceeding 105 percent.
- Many of the country’s largest lenders, including Bank of America and Chase, are only willing to offer HARP refinancing on loans that they currently service. If you aren’t currently with one of these lenders, you may have to look harder to find a HARP 2.0 refinance.