For underwater homeowners who want to refinance their mortgages, the details of HARP 2 are coming into focus.
HARP 2 is a liberalized revision of the Home Affordable Refinance Program. (See Bankrate's HARP page.) HARP's goal was to allow homeowners to refinance their loans, even if they owed more than their homes were currently worth. Millions of homeowners are in this predicament because their homes lost value in the bursting of the housing bubble.
HARP was introduced in 2009, and it was designed to help homeowners with mortgages owned by Fannie Mae or Freddie Mac. The program let borrowers refinance at up to 125 percent of their homes' current values. For example, under HARP, if you owed $125,000 on a house that was now worth $100,000, you could qualify for a HARP refi, because your loan was 125 percent of the home's value. But if you owed more than 125 percent of the home's value, you were out of luck.
That 125 percent loan-to-value limit has been eliminated under HARP 2. Under new rules issued on Tuesday, there is no loan-to-value limit on HARP refis -- at least, for borrowers who have fixed-rate mortgages.
The elimination of the loan-to-value limit is the biggest change under HARP 2. Here is a rundown of HARP 2's guidelines:
- The program is for borrowers whose mortgages are owned by Fannie Mae or Freddie Mac, and who got their loans before May 2009.
- HARP had been scheduled to expire at the end June 2012; HARP 2 extends the expiration to the end of 2013.
- There is no loan-to-value cap anymore for borrowers who now have fixed-rate mortgages.
- For borrowers with ARMs, the loan-to-value cap remains 105 percent.
- Borrowers can qualify for HARP 2 refis if they have paid on time for the last six months and have no more than one 30-day late payment in the last 12 months. Originally, HARP didn't allow any delinquencies in the last 12 months.
- Fees have been reduced. Lenders are fond of adding fees to loans that have an added smidgen of risk. Fannie and Freddie call these fees "loan level price adjustments," and the charges easily can climb to 2 percent of the loan amount on HARP refis. Under HARP 2, the fees are reduced to zero percent on loans for 20 years or fewer, and 0.75 percent for mortgages for more than 20 years and for ARMs.
Generally speaking, the changes go into effect Dec. 1.
Regulators and analysts expect HARP 2 to result in 1 million more refis than would have closed under HARP, with an average loan balance of $150,000 to $175,000.