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February 24th, 2011

Understanding HARP’s stumbling blocks will increase your success

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In an effort to help the readers of this blog gain a better understanding into the struggles homeowners have experienced via the HARP program, I asked  mortgage professional Jim Campbell to share some ways homeowners can increase their chances at success. Below is a guest post written by Mr. Campbell:

ApprovedSince the creation of the Home Affordable Refinance Program (HARP) in 2009, millions of people have tried to refinance with the hope of lowering their mortgage payment.  However, only about 200,000 homeowners have refinanced through HARP.  So why does it work for some but not others?  I’m going to share an inside perspective on the challenges people run into, to give some insight into what can be done to increase your odds of success.

First, let’s clarify what makes a refinance a HARP refinance.  The HARP program only applies to loans that are owned or guaranteed by Fannie Mae or Freddie Mac.  You can find out if your loan is owned or guaranteed by the GSEs by using the loan lookup tools here: http://www.makinghomeaffordable.gov/get-assistance/loan-look-up/Pages/default.aspx.

The vast majority of mortgages, including HARP loans, follow Fannie Mae or Freddie Mac approval guidelines.  Hopeful refinancers will need to qualify based on credit history and a verified ability to repay.  The difference with a HARP loan is that Fannie and Freddie have loosened the approval guidelines to help people who have experienced a decline in their home’s value.

LTV, TLTV ratios

HARP loan guidelines allow for loan-to-value (LTV) ratios up to 125 percent. In addition, HARP loans do not require monthly mortgage insurance, which is normally required when the LTV exceeds 80 percent. Let’s look at an example:

Sally homeowner purchased her home five years ago for $200,000 and put 10 percent down.  She took out an interest-only first mortgage for $180,000, and her LTV was 90 percent.  Since then, she took out a home equity loan for $20,000 to buy a car.  The total amount she owes today is $200,000.  However, because of several foreclosure sales in Sally’s neighborhood, today her home appraised for only $150,000!  Does she qualify for a HARP refi?

The quick answer is yes.  Her LTV ratio is 120 percent ($180,000 balance divided by $150,000 value), which is within the 125 percent maximum.  Her home equity second mortgage of $20,000 increases the total loan-to-value (TLTV) to 133%, but that’s OK because there is no defined HARP limit on TLTV.  Looks like all green lights so far, right? However, there are additional HARP rules and varying rules with each lender that make this scenario difficult.

Although the HARP rules allow up to 125 percent LTV, very few lenders go up to the maximum.  Others cap the maximum LTV at 105 percent, or 100 percent, etc.  To make matters worse, not all lenders offer the Freddie Mac program, and only have the Fannie Mae version of HARP.  So, homeowners who only talk to their current lenders may not have success.  If the original loan didn’t require private mortgage insurance (PMI), you may be better served going to a broker who is familiar with and has access to several lender options.

Second mortgages

Second mortgages have been a barrier because a HARP loan can’t pay off a second mortgage, so it must be re-subordinated.  In our example above, Sally’s second mortgage lender has to agree to be in a subordinate lien position behind the new first mortgage. Initially when HARP rolled out, many second mortgage holders would refuse to re-subordinate behind the new HARP loan if the TLTV was outside their current guidelines.  Fortunately, many have come to the realization that allowing the borrower to refinance makes it easier for them to afford their payments, and therefore lessens the risk of default.  Although subordinations still occasionally get declined for TLTV depending on who holds the second mortgage, the situation has improved dramatically.  An experienced HARP provider can tell you which second mortgage lenders have been approving high TLTVs.

PMI

In our example, Sally’s original loan was at 90% LTV, and therefore required PMI.  When the loan being refinanced has PMI, HARP rules require that the refinance must be done through the current lender.  This means a broker will not be able to help you.  In addition, the original mortgage insurance provider must agree to insure the new loan.  As a result, loans with PMI on them are more difficult to refinance under HARP because mortgage insurers have been wary of writing policies for homeowners who may be underwater or in some other form of financial trouble.

Although the program has limitations, HARP continues to help families save money on their mortgage.  The program was extended through June 2011, so it’s not too late to take advantage of today’s low mortgage rates.

Jim Campbell is a licensed mortgage professional in Illinois.  He can be reached at Aspen Mortgage, Naperville, 630-983-3600 or via email at jcampbell@aspenm.com.

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7 Responses to “Understanding HARP’s stumbling blocks will increase your success”

  1. Tweets that mention Understanding HARP’s stumbling blocks will increase your success | HSH Financial News Blog -- Topsy.com Says: February 24th, 2011 at 12:33 pm

    [...] This post was mentioned on Twitter by HSH Associates, Roberto Mazzoni. Roberto Mazzoni said: Understanding HARP’s stumbling blocks will increase your success: In an effort to help the readers of this blog … http://bit.ly/g7iH0v [...]

  2. Rala Says: April 25th, 2012 at 6:52 pm

    I applied for the extended Harp just recently, and meet all the guidelines. At the processing stage I ran into an obstacle. The local lender I was applying through said that Fannie Mae would not accept a loan to value of over 109% given my particular credit score. Can this be the case, or is it my local bank which is setting these limits? It seems to me that the reason so few HARP loans are being given are that the local banks do not like the terms, and hide behind Fannie Mae as an excuse.

  3. Tim Manni Says: April 30th, 2012 at 10:59 am

    Rala,

    HARP 2.0 is designed to remove all underwater restrictions (an LTV ratio above 100%). Of course, your local bank may have their own LTV restrictions, especially if your credit score is very low. I encourage you to shop around. Good luck, keep me posted,
    Tim

  4. bill Says: September 19th, 2012 at 1:42 pm

    HARP, this is a program that was setup to help people get better rates by refinancing there current loans, they must be a fannie mae or freddie mack loan. Ok so i contected my lender after reading all about HARP and according to the requirements I was a good candidate. Until I talked to my Lender oh yes it it BANK OF AMERICA which doesn’t do harp with pmi for there own customers. I had over 20 percent equity when i refinanced and I didnt need pmi. Now the guy at Bank of Amwerica id 183814 tells me I have lender pmi, what is that does anyone know. I told him I know nothing about lender pmi, i have not seen anything in my statements, i did not sign anything stating lender pmi would be paid. So I asked for anything to backup that they are paying pmi and the guy couldnt show me anything, when i pressed him more information he supposedly transfered me, disconnected me. I contacted Fannie Mae and that was just a funny, the lady there told me I would have to ask the lender BA to removed Lender PMI, now why would BA remove lender pmi if there is such a thing so I can take my loan to another lender. This HARP thing seems to a smoke show and the very day person flipped up side down because the maket tanked is just stuck.

  5. Mendel Says: November 13th, 2012 at 3:49 pm

    There is a major fault in the HARP program regarding a 2nd mortgage.

    Even if the 2nd lender is ready to subordinate their mortgage, HARP won’t approve you unless the 2nd mortgage is with a BANK. If you have a 2nd mortgage with anything other than a bank – for example, if you took a home improvement loan from a government branch – you can’t get approved by HARP even if they are ready to subordinate the 2nd mortgage!

  6. Phill Says: February 19th, 2013 at 6:24 pm

    So is there any hope or program for those of us with a Real Estate Contract (REC) and in an upside down situation?

  7. Bar Hall Says: May 24th, 2013 at 5:56 pm

    What can be done if HARP underwriter misrepresented my sisters income on the approval letter she received? (which would only lower her payment by $134.00) Upon receiving her modification and reviewing the figures she noted and mistake done by HARP (she had submitted all her pay stubs and income) my sister called to bring it to their attention she was told by the HARP rep that although she could see where the error was made she didnt believe that anything could be done. Is there anyway to get this resolved without starting the process all over?

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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