Homeowners can start applying to refinance their underwater
mortgages under new HARP guidelines as soon as Dec. 1, according to
new program rules released late yesterday.
The new rules also reduce up-front costs for borrowers
refinancing underwater mortgages and make it easier to refinance if
a borrower has previously gone through foreclosure or a
Of course the biggest change is that homeowners will now be
allowed to refinance Fannie Mae- or Freddie Mac-backed mortgages no
matter how much their homes have fallen in value. It was previously
announced that a current limit restricting refinanced mortgages to
no more than 125 percent of the current property value is being
Targeted at underwater borrowers
HARP, which stands for Home Affordable Refinance Program, is a
government initiative designed to enable borrowers with little or
no equity in their homes to refinance their mortgages at lower
rates. With 30-year mortgages now averaging around 4.0 percent,
according to Freddie Mac, borrowers are currently seeing the lowest
mortgage rates in at least 60 years.
According to lender's guidelines released Tuesday by Fannie Mae
and Freddie Mac, the new rules apply to applications to refinance
mortgages submitted on or after Dec. 1, 2011, and through Dec. 31,
2013, when the program expires.
Upfront fees waived for 15-, 20-year fixed-rate mortgages
The maximum loan-level price adjustment - an upfront fee charged
on low-equity mortgage - is being reduced to 0.75 percent of the
loan amount from 2.0 percent currently. The fee is being eliminated
for loan refinanced into fixed-rate mortgages with terms of 20
years or less.
In addition, the standard waiting period for re-establishment of
credit following bankruptcy or foreclosure is being eliminated.
Lender guidelines, timetables may vary
Individual lenders will vary as to their own schedules as to
when they will start to accept refinance applications under the new
guidelines, and some will likely not participate. Others may
implement their own, stricter guidelines than those allowed under
the program - for example, some may still set limits on how far a
borrower can be underwater and still be approved for a refinance,
though Fannie Mae and Freddie Mac now have no such limits
Certain guidelines that offer refinancing lenders protection
against liability for problems arising from the original mortgage
will not take effect until March 2012, which could slow the pace of
approvals over first few months the new guidelines are in
However, borrowers will not be restricted as to which lender
they can refinance with, so it seems likely that participating
lenders will soon begin advertising to draw away other lender's
PMI issues remain unsettled
Another potential problem has to do with Private Mortgage
Insurance (PMI), which is paid by borrowers who initially made down
payments of less than 20 percent of their loan amount. While most
insurers have indicated they will allow mortgage insurance to be
transferred to a new mortgage following a HARP refinance, one of
the major ones is reported to be refusing to go along.
Bloomberg News reports that American International Group (AIG)
is telling mortgage lenders it won't allow mortgage insurance to be
simply transferred to the new loans created by refinancing. It
cites an AIG spokesman as expressing concerns lenders could use the
program to evade responsibility for poor decisions made in issuing
the original mortgages.
AIG's stance is particularly surprising given that the company
is primarily owned by the Treasury Department, a consequence of the
financial bailout that followed the company's 2008 liquidity
The HARP program is limited to mortgages backed by Fannie Mae or
Freddie Mac. Loans must have been originated prior to June 1, 2009.
To qualify, borrowers must be current on their mortgage payments
with no delinquencies over the previous six months and no more than
one during the rest of the previous year.