Important HARP Loan Program Update

HARP 2.0 Could Help as More than 1.5 Million Borrowers Refinance at Today’s Low Mortgage Rates: Freddie Mac Chief Economist Frank Nothaft recently stated that the new Home Affordable Refinance Program could possibly help as many as 1.6 million borrowers to refinance their home loans at today’s record low mortgage rates. Nothaft commented in Freddie Mac’s November 2011 Economic Outlook: “HARP is available for certain borrowers with current loan-to-value ratios above 80 percent and whose loan is owned by Freddie Mac or Fannie Mae. From inception (April 2009) through September 2011, more than 900,000 borrowers have obtained a refinance loan through HARP. In addition to an extension of HARP through the end of 2013, the recent announcement included the following enhancements: waiving certain loan seller/servicer reps and warranties for eligible borrowers, reduction or elimination of some fees that had been previously assessed, removal of the maximum current loan-to-value limit, and eliminating the need for a new property appraisal in some cases. Estimates of the number of additional HARP refinances vary, with the Federal Housing Finance Agency stating that “HARP refinances may roughly double or more from their current amount”, Keefe Bruyette & Woods’ analysts estimating about “1 million incremental loans”, and Moody’s Analytics projecting as much as 1.6 million additional loans above what would have occurred under the original HARP terms, bringing the total number of HARP refinances to as much as 2.85 million loans by the end of 2013.” In addition to helping more than a million underwater homeowners refinance their mortgages, HARP 2.0 could cause an increase in mortgage originations of between $200-300 billion in 2012-2013. On average, somebody refinancing with HARP 2.0 could save more than $2,000 in interest payments on their home loan in the first twelve months after refinancing. It is also notable that Fannie Mae has made some key changes to their underwriting guidelines pertaining to HARP 2.0 that could encourage more lenders to jump on board with the program. Fannie eliminated an underwriting requirement that forces the lender to determine is the borrower has a “reasonable ability to repay” the loan based upon debt-to-income ratio, income, and other factors. It appears that the lender is now able to qualify borrowers through a streamlined process that could only take into account credit score and the number of recent payments made. This could make it significantly easier to qualify borrowers for new loans.