Home Affordable Refinance Program: Trick or Treat?


The Federal Housing Finance Agency, which regulates the activities of Fanniemae and Freddiemac, announced this week that they would make refinances possible for many more millions of people who are substantially underwater on their mortgages.  The devil is in the details which are not very well defined just yet.  This is what we do know(see my comments in parenthesis)…


This is an extension of the program known as the Home Affordable Refinance, and more information can be found at www.makinghomeaffordable.gov   Only conventional mortgages owned by Fanniemae and Freddiemac are eligible.   It’s easy to find out on the site whether one of these entities owns the loan. 


 According to the FHFA, the new program enhancements address several key aspects of HARP including:  

  • Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers. (Up until now, a refinance for someone underwater has created so much additional risk that the rate had to be much higher in order to cover the adverse delivery fees tacked on by the GSE’s-Fanniemae and Freddiemac). 


  • Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac. (We have not yet heard whether there is a no ceiling or no ceiling at all).


  • Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac. (While I don’t know which reps and warrants they have focused in on, lenders are being asked to repurchase loans where the I’s aren’t dotted and the T’s aren’t crossed, and where the T’s aren’t dotted and the I’s aren’t crossed.  A loan that has a 150% LTV is a bit risky for a servicer.  If a borrower has to move for a job, there’s a strong possibility that’s going to result in a short sale or foreclosure.  The language most likely spells out just who is responsible for what in such circumstances.  Otherwise, this being a voluntary program, there is no incentive for an industry under siege by Mainstreet and the political powers that be, to participate.)


  • Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises. (On the other hand, servicers are charged with handling the collection of payments, processing short sales and foreclosures and again, since the program is voluntary, will still have the option of requiring an appraisal.)


  • Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009. (The original program was set to expire September 30th of this year.  The loan must have been closed prior to May 31, 2009 to be eligible.)


The Enterprises plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by November 15. Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.

With these low rates, and more flexible guidelines, we’re optimistic that this will turn into a real treat for credit worthy borrowers!  Stay tuned for more details.                                –Kate Wilson


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