This post published on Monday October 24th 2011. Since publication,and depending on the date you are reading this, more information, or even the complete HARP II rules may have been published. Feel free to contact me if you have any questions on the current state of the HARP II refinancing program
The Federal Housing Finance Agency today announced some long awaited changes to the Home Affordable Refinance Program, or HARP, that will allow underwater homeowners to refinance more easily.
On a first read of the announcement, the changes look to be aggressive, and will absolutely capture more borrowers who were frozen out of low-rate refinances. Itshould set off a refinance boomlet as pent-up demand rushes into the market to grab ultra-low rates.
But before anyone gets too giddy, there are a few things worth understanding about how and when this new program will work out.
There Are No “HARP II” Rules Yet
At this point, the ONLY information available on the program is contained in the news release from the FHFA.
The announcement does provide a useful summary of the key changes (more on this below) but the actual guidelines for this program won’t be available to lenders until Nov 15th, and it will assuredly take days or weeks for lenders to implement the new rules and processes before HARP II is broadly available to the general public.
What We Do Know About HARP II
- Loan-to-Value Ceilings: The current loan-to-value ceiling of 125% will be removed entirely. This means, in theory, that no matter how upside down, the LTV ratio alone will not impede refinances.
- Appraisals: To the joy of everyone but appraisers, formal appraisals will be (almost) eliminated. The potential downside? They are being replaced by Automated Valuation Models (AVM’s) where such models are deemed “reliable.” If you hated an appraisal, the AVM may be worse for some, though the elimination of LTV renders any measure of value somewhat moot.
- Fee Reductions: Some of the risk -based fees associated with HARP will be reduced or eliminated.
- Eligility Dates Don’t Change: ONLY loans created before May 31st 2009 will be eligible, and HARP remains a one-time only program (this was true under HARP .)
- Documentation: Income and other documentation is expected to be reduced, streamlining the process.
- When it will be available: No earlier than Dec 1st, with many of the changes delayed until Jan 2012.
What We Don’t Know About HARP II
- Lender participation: Is NOT mandatory. Under HARP I, many major lenders and servicers imposed additional limitations on the program (capping LTV at 110%, even though Fannie allowed 125%, etc.) While HARP II addresses that (in theory, by waiving certain ”representations and warranties” that lenders were required to make) we expect that HARP II rules will also see inconsistent treatment and application across the industry.
- Mortgage Insurance: The transference of mortgage insurance was a huge sticking point under HARP I, with the effect that almost all HARP eligible loans with PMI were impossible to refinance. This is supposed to be fixed under HARP II, but details are few, and vague as to how this will be handled.
- Second Mortgages: While there are no rules under HARP I or HARP II that would prevent a borrower fom refinancing, it is an open question as to whether the second mortgage lenders will follow the new rules regarding LTV, appraisals, and reduced borrower documentation. These lenders have traditionally been more strict than even the first mortgage lenders when it comes to documentation.
- Interest Rates: Base mortgage rates for HARP II will still be set by the market, are always in motion, and thus will be different than today when the program is actually available. We also do not know what specific pricing changes or “loan level price adjustments” will be applied to HARP II loans according to credit, loan type, LTV etc.
Bottom line: While this is an encouraging set of changes, and will allow hundreds of thousands of additional refinances, implementation and participation by the private lenders, servicers, mortgage insurers and others remains THE key to the success, and availability, of HARP II.
Looking to refinance under HARP or HARP II? Be first in line: You do NOT need to wait until the rules-changes are in place to submit your application. If you are not currently eligible for HARP, we’ll simply keep your file on hold until the new rules are published. This way, you can be first in line to lock a low interest rate as soon as HARP II is available.
To get started, just drop me a line with a few bullet points about your situation and what you are looking to do.