Don’t Give Up On a HARP Refinance

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For homeowners who are underwater on their mortgage, a HARP refinance is like the pot of gold at the end of a rainbow. Unfortunately, it can be just as elusive.

HARP, of course, is the Home Affordable Refinance Program, a federal initiative designed to enable borrowers with little or no home equity to refinance their mortgages at today's low rates. The program allows you to refinance even if you owe more on your mortgage than your property is worth.

Many borrowers complain that they meet all the requirements for HARP, but their mortgage company still turns them down. Some report going through drawn-out application procedures only to be turned down at the end. Some have applied multiple times as the program has loosened its guidelines, only to be turned down each time.

So what can you do?

Your current mortgage company

The first place most people start when applying for a HARP refinance is with their mortgage servicer. Your mortgage servicer is the company you send your mortgage payments to every month. They may not be the lender you originally obtained your mortgage from, but they're the ones who are currently handling your account.

If you can do so, getting a HARP refinance through your current mortgage servicer is often the easiest way to go. For one thing, you already have an existing relationship with them. For antoher, many lenders will do HARP refinances only for their current mortgage customers - if your loan is serviced by someone else, they'll turn you down.

What about other lenders?

Just because your current mortgage servicer denies your application for a HARP refinance doesn't mean you're out of luck, however. HARP guidelines specifically allow you to refinance your low-equity or underwater mortgage with any lender who will accept your application.

Finding lenders who accept HARP refinance applications from new customers can be a challenge, however. This is due in part to the fact that many of the biggest mortgage lenders - the first ones you're likely to think of when considering other refinance options - are often the ones who will only do HARP refinances for existing customers. So if they're the ones who are calling, and you keep getting turned away, you might quickly assume no one else will take your application.

Small banks, credit unions and mortgage brokers

You might find you'll have better luck with small- and medium-sized lenders. These include regional banks, savings and loans, specialty mortgage lenders and certain credit unions. Some of these are quietly opening the door to refinancing other lenders' loans through HARP.

To find the right lender, you might consider going through a mortgage broker. Mortgage brokers don't actually make loans themselves, they work with a large number of lenders with different lending programs and requirements. They can be quite useful in arranging mortgages for borrowers with particular lending needs, and a HARP refinance certainly fits that description.

Lenders have different guidelines

Remember that even though the overall eligibility guidelines for HARP are quite generous - no limit on how far underwater your mortgage is, refinancing is allowed on loans with mortgage insurance, no minimum credit scores - the program is still a voluntary one for lenders. That means they may have their own guidelines, or overlays, for what type of loans they will refinance.

One of these overlays may be that they will only accept existing customers. Another may be a limit on far underwater a mortgage can be for them to still refinance it. They may have credit score or income requirements as well.

Are there changes you can make?

The point is, these standards vary from lender to lender. Just because one lender - particularly your current mortgage servicer - tells you that you don't qualify for the program, that doesn't mean you won't qualify with a different lender. Finding the right one may take some digging around though, which is why a broker may come in handy.

If a lender turns down your HARP application, try to find out why. Sometimes, you can use that information to make changes that will allow you to qualify. Maybe you're carrying too much debt. Maybe you need to improve your credit. Maybe you need to reduce your loan-to-value ratio to a level the bank will accept.

Three rules you can't avoid

That being said, HARP does have certain guidelines that all participating lenders must follow, regardless of their own overlays. If you don't meet these, you can't qualify for a HARP refinance no matter which lender you go to.

First, you have to have a mortgage guaranteed by Fannie Mae or Freddie Mac. That's fundamental. The program is operated through these two guarantors, both of which are in government receivership. But if they don't back your mortgage, they can't help you.

Fortunately, the majority of residential mortgages in the U.S. are backed by one or the other. Both have tools on their web sites ( www.fanniemae.com and www.freddiemac.com ) where you can immediately find out if your mortgage is guaranteed by them. The VA and FHA have their own programs for refinancing underwater mortgages.

Second, you must be current on your mortgage payments, with no late payments in the past six months, and no more than one in the past year. Third, your mortgage must have been acquired by Fannie Mae or Freddie Mac prior to June 1, 2009.

Getting a HARP refinance can be a frustrating process - but lenders are approving thousands of them every month. Don't give up just because your mortgage servicer or the first few lenders you contact turn you down - the right lender may still be out there for you.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Banking and Loans

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