By John Adams
For the AJC
Major changes to the Home Affordable Refinance Program (HARP) were announced recently by the Federal Housing Finance Agency. The biggest change will allow some homeowners to refinance their homes, even though they owe more on their existing loan than their homes are worth.
No appraisal is necessary and there is no maximum loan-to-value ratio, meaning borrowers who are underwater on their current loan may be able to refinance and get a much lower interest rate and perhaps a shorter payback period.
This new program, dubbed "HARP Phase 2," is targeted at so-called responsible borrowers who are current on their payments and have not been more than 30 days late in the past 12 months. To qualify, your existing mortgage must have been sold to Fannie Mae or Freddie Mac on or before June 30, 2009.
Another surprise in the administration announcement is the scope of potential beneficiaries. Borrowers no longer need be owner-occupants to have a chance of a new loan. This means that owners who have second residences or have moved to another home can still qualify.
It also recognizes, for the first time, that many of the preventable foreclosures belong to investors who are using the properties as rental homes for investment. In the past, relief has been restricted to owner-occupants.
In recent weeks, loan rates have been held down by a flight to safety from investors fleeing uncertainty in the EU. But that could change.
Because this new program is open to so many potential applicants, it is entirely possible that there will be a surge in refinance applications, resulting in higher interest rates.
Only borrowers whose loans are now owned by Fannie Mae or Freddie Mac can qualify for this program, and applicants need only supply verifiable evidence of an income source, but not an amount of income.
While some of the details have yet to be revealed, it appears that there are incentives for borrowers to move from longer-term financing to 15- or 20-year payback periods. Lenders will be allowed to add "overlays," allowing for slightly different programs from lender to lender. So be prepared to shop and compare among several lenders for the best deal on your refinance.
Perhaps the biggest area of change is one that borrowers will never see -- it's the incentive that Fannie Mae and Freddie Mac will deliver to lenders who participate.
Currently, most loans owned by these government-sponsored enterprises contain guarantees and buyback provisions if an investigation reveals fraud or shoddy underwriting. That potential liability has been hanging over the heads of lenders for years.
But under the new HARP 2 rules, lenders who refinance eligible loans will be released from those possible problems. Some industry watchers have suggested Bank of America may be so anxious to cleanse its Countrywide portfolio that BOA may actually call borrowers and offer to help with the cumbersome refinancing process.
Loans created under this program must be "rate and term" loans, meaning that borrowers may not increase the balance, but can hopefully lower the rate and adjust the term on the new loan.
Even so, it appears that borrowers will be able to opt for a "zero closing cost" option by agreeing to a slightly higher interest rate on the replacement loan. That premium allows the lender to sell the loan for enough additional profit that the lender will pay all closing costs for the borrower.
If you think there is any possibility that you might qualify for one of these streamlined refinance loans, I recommend that you act quickly. Lenders are likely to be swamped with applications when these loans become available, and the sooner you lock in a low interest rate, the better. It will likely take lenders several weeks to study the rules and decide how they will interpret them, so be persistent but patient.
By the way, if this program is as successful as I hope it will be, the administration may be encouraged to take more action to broaden the opportunity to refinance. So if you don't qualify for this particular program, stay in close touch with your lender.
Finally, if you fear you are headed toward losing your home, call Credability Inc. of Atlanta (formerly CCCS) at 1-800-251-2227 and seek foreclosure prevention counseling.
I have posted to my website several pamphlets from federal agencies covering tips to avoid foreclosure, and you may download these for free at www.money99.com.
John Adams is an author, broadcaster and investor. He answers real estate questions submitted through his website and in this column. For more real estate information or to make a comment, visit www.money99.com.
