Do you qualify for the home affordable refinance program?

The federal government's Home Affordable Refinance program is designed to help homeowners refinance their mortgages even if they owe slightly more than the current value of their homes. The program could be a boon for some borrowers, though its many layers of rules may resemble one of those maddeningly complex contests that offer valuable prizes to people who complete a maze of special offers.

Refinancing by the rules
  • The federal government.
  • Fannie Mae.
  • Freddie Mac.

The program is complicated because the federal government has a top-level set of rules; Fannie Mae and Freddie Mac have their own separate sets of rules; and lenders, loan servicers and mortgage insurers generally have their own rules as well.

Borrowers may well wonder where to begin. Here's our guide to help you navigate through this labyrinth of rules.


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Federal government Home Affordable Refinance rules

Objective: The federal government's Home Affordable Refinance program is intended to help creditworthy homeowners whose homes have decreased in value refinance their mortgages to obtain lower interest rates or payments, lock in a fixed interest rate or eliminate onerous loan terms to improve their long-term stability as homeowners.

  • The program applies only to loans that are owned or guaranteed by Fannie Mae or Freddie Mac, the two secondary-market mortgage corporations that currently are operated under federal government conservatorships.
  • The borrower must be an owner-occupant of a detached house, condominium, duplex, triplex or four-unit residential property. (Fannie Mae's and Freddie Mac's rules may allow exceptions to this rule.)
  • The borrower must not have made a loan payment more than 30 days late in the last 12 months or missed a payment if the loan was originated fewer than 12 months ago. (Borrowers who are delinquent or have made a payment more than 30 days late during the prior 12 months may qualify for the Home Affordable Modification program.)
  • The new first mortgage cannot exceed 125 percent of the current market value of the property. (As of June, the loan-to-value was changed to 125 percent to make more homeowners eligible.)  
  • If the borrower has a second loan, that loan isn't counted toward the 125 percent limit. The second loan must remain subordinate to the new first mortgage.
  • The borrower cannot take out cash to pay other debts but may be allowed to finance closing costs or obtain small amounts of cash, subject to Fannie Mae's or Freddie Mac's rules.
  • The interest rate on the new mortgage will be a market rate. Rates may vary among lenders. The borrower may be charged fees, points or other refinancing costs.
  • The borrower must have sufficient income to afford the new mortgage payments.
  • The new mortgage cannot have a prepayment penalty or balloon payment.
  • The borrower's existing loan balances will not be reduced.
  • Borrowers whose existing mortgage is covered by private mortgage insurance, or PMI, will be required to continue that insurance on the new loan. Borrowers who don't have mortgage insurance won't be required to obtain it.
  • So far, 15 lenders have signed formal agreements to participate in this program. A list of these lenders has been posted on the Making Home Affordable Web site. Other lenders may also offer this program.
  • Borrowers are encouraged to gather documents before they contact a lender or loan servicer. Recommended documents include:
    • Paycheck stubs or other income-related documents.
    • Recent income tax return.
    • Information about any second loan secured by the property.
    • Account balances and monthly minimum payments on credit cards, student loans, car loans and other debts.
  • Borrowers are encouraged to complete the short self-assessment questionnaire to obtain a preliminary indication of whether they may be eligible for this program.
  • This program will end June 10, 2010, unless that deadline is extended.
  • More information may be found at Making Home Affordable. Borrowers should be very careful to consult only the government's official Web site, as a number of copycat Web sites have sprung up to entrap the unwary. Some sites copy the government Web site and change the telephone number at the top.

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