The new Home Affordable Refinance Program (HARP) rules, developed at the direction of the Federal Housing Finance Agency with input from lenders, mortgage insurers, and the GSEs, eliminate the previous 125% loan-to-value ratio (LTV) cap on existing loans when refinancing to a fixed-rate loan. The changes, announced in October, also include enhancements for participating lenders.
In order to align their processes with the new criteria, the GSEs have instituted some changes effective for loan applications received on and after December 1, 2011. More changes are expected during the first quarter of 2012, including the delivery of loans with LTV greater than 125%.
More than 998,000 borrowers have refinanced through HARP from the program’s inception in March 2009 through November 2011. Under the revised criteria, significantly more underwater borrowers will have access to affordable, sustainable loans.
There is no way to accurately project the number of borrowers who will take advantage of the enhancements to HARP. However in testimony before a House Subcommittee in November, Edward DeMarco, acting director of the Federal Housing Finance Agency, said,Since HARP was introduced in 2009, almost 900,000 homeowners have refinanced through the HARP program. We believe the changes announced last week may help double the number of homeowners helped through HARP.
HARP is available to borrowers with a current LTV above 80% on their principal residence as long as they have an acceptable payment history and are current on their mortgage payments. The loan must have been acquired by the GSEs on or before May 31, 2009.
For those loans delivered on or after January 3, 2012, certain risk-based fees have been eliminated if borrowers refinance into loans with terms of 20 years or less. Risk-based fees for longer-term mortgages have also been reduced.
Participating credit unions may benefit from reduced costs and representation and warrant relief as well as an increase in appraisal waivers, which could facilitate additional refinance activity.
The intent of enhancing HARP is to remove potential barriers for both lender and borrower and thereby provide options for credit unions to develop a practical strategy to reach their hardest-hit homeowners and communities with significant financial relief.
HARP is not the only refinancing option available to borrowers. In fact, almost nine million homeowners with GSE loans have refinanced since 2009 through a variety of programs and products. However, HARP is theonly program that allows borrowers who owe more than the value of their home to take advantage of low interest rates and more stable, sustainable mortgage loans.
Highlights of the HARP changes include:
|New Sunset Date||Now for loan notes dated on or before December 31, 2013.|
|Maximum LTV||There is no LTV cap when refinancing to a fixed-rate mortgage.|
|Appraisals||Expands appraisal waivers.|
|Loan Level Price Adjustments||0% rate for loans with terms of 20 years or less; capped at 0.75% for longer-term loans.|
|Representations and Warrants||Waives certain reps and warrants on the original loan when refinanced by the current servicer.|
|Solicitation of Borrowers||Provides more flexibility to inform borrowers about refinancing opportunities.|