Your income and credit must meet qualifying criteria.
Then, there’s the appraisal.
Du-Du-Duh!
Obviously, home values aren’t what they were. That makes it difficult for homeowners looking to refinance and take advantage of the redonkulously low interest rates available.
That’s why the government invented the Home Affordable Refinance Program, or HARP.
HARP in a nutshell
Basically, HARP was designed to assist homeowners who owe more than their house is worth to refinance their current mortgage. The first run of the program allowed homeowners who owed up to 125% of the value of their home to refinance using Fannie Mae’s DU Refi Plus, or the Freddie Mac equivalent.
Lots of people were able to refinance using HARP loans, but nowhere near the numbers initially estimated.
More importantly, nowhere near the number of people who needed to.
That is, until now…(cheesy radio announcer voice).
The Scoop
On October 24th, the FHFA announced changes were a-comin’.
Hot-diggity! Here are the key points:
- Removal of the current 125% loan-to-value (LTV) limitation.
- Extension of the previously scheduled termination of HARP to at least December 2013
- Eliminating some “risk-based” fees for homeowners who refinance to shorter term loans
- Eliminating the need for an appraisal if sufficient data exists using AVMs
- Elimination of certain warranties and representations made by lenders
Whatchoo Talkin’ Bout?!
I will now do some ‘splainin’.
There is now no loan-to-value limitation on HARP refinance loans. Yes, you heard correct. It doesn’t matter how much you owe as a percentage of your home’s value.
HARP was scheduled to expire in June of 2012; that date has now been extended to December of 2013 which will allow more time for people to get in on the HARP program.
Risked-based fees are costs that are built into your rate, based on your loan-to-value ratio and your credit score. This is big, because those costs can add up quick if you have a high LTV and less than completely stellar credit. In fact, they could add up so quick that it doesn’t make sense to refinance because the interest rate is too high.
Elimination of the appraisal in favor of AVMs (automated valuation models) is a potentially great change. An AVM means you don’t get some random appraiser out at your house picking everything apart. However, there needs to be a sufficient AVM for your house because the bank isn’t going to refinance a house that has been the victim of an explosion :-)
Elimination of some representations and warranties means that the lenders who make HARP loans will be “let off the hook” a little bit as far as future liability for these loans go. That’s inside baseball though, so let’s not dwell on it.
The Big Takeaway
While I welcome change to the HARP program, and am all for helping people refinance to lower rates, I have 2 questions/concerns about the details that have been released thus far.
Number 1: I think the idea behind the elimination of the LTV limits is awesome. On paper anyway. Talking with many of my colleagues in the office, it seems that getting anything above 105% LTV approved through automated underwriting has become increasingly difficult. Bottom line: unless the automated underwriting gets appropriately tweaked, I’m not sure this is going to matter a whole helluva lot. UPDATE: anecdotally speaking, the automated underwriting engines ARE kicking out more approvals at higher LTVs recently. Emphasis on “anecdotally”.
Number 2: Eliminating risk-based fees for homeowners who refinance to shorter terms doesn’t sit well with me intellectually. If I want to refinance to take advantage of today’s inconceivably low interest rates, why on God’s green earth would I shorten the term of my loan? That is to say, why would I want a 15 year loan with a high payment when I already have a 30 year loan with a high payment? The “logic” behind this move is that homeowners will get into a positive equity position sooner with shorter loan terms, so that behavior should be incentivized. I’m just not sold that shorter loan terms sound good to people who want to reduce monthly expenses.
These are my thoughts on the details we have available right now. Fannie and Freddie are scheduled to release more details on November 15th. I sincerely hope that announcement will help to clarify these changes, and that the HARP program will help many more families refinance their out-of-date mortgage.
If you’d like to learn more about HARP refinancing in Oregon and Washington, fill out the following no-spam-guaranteed contact form or call me at 503.799.4112 – Thanks for reading!
