If you’re not behind on your mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through the Home Affordable Refinance Program (HARP).
After the real estate crash, many New Jersey homeowners found themselves underwater on their mortgages, meaning they owed more money than their home was worth. This prevented them from refinancing to a lower rate as lenders are unable to provide financing when the loan exceeds the home value.
The HARP program was created by the Obama Administration to help people refinance even though they are underwater. In short, HARP provides lenders with the ability to refinance consumers to a lower rate of interest despite that fact that they owe more then the homes current value – good news indeed!!
In order to be eligible for a HARP refinance, you must meet at least the following minimum requirements;
- The current owner of your loan must be Fannie Mae or Freddie Mac. Note that the “owner” of your loan may not be the same entity as the “servicer” of your loan. The servicer is simply the lender collecting your monthly payments and not necessarily the owner of your loan. In order to be HARP eligible, the loan must be owned by Fannie Mae or Freddie Mac. Your American United Lending Professional can help you easily determine if Fannie Mae or Freddie Mac is the owner of your loan. Call 908.322.5535, or email us firstname.lastname@example.org.
- The loan must have been securitized (sold to) Fannie Mae or Freddie Mac on or prior to May 31, 2009
- The existing mortgage must have had no 30-day late payments in the last 6 months, and no more than one 30-day late payment in the past 12 months.
- You must not have used a HARP refinance previously on the property you wish to refinance
- American United is currently offering HARP refinances in New Jersey only
There are two different versions of HARP. The Fannie Mae version is called DU Refi Plus. The Freddie Mac version is called the Open Access Relief Refinance. These two programs are essentially the same for most borrowers. The HARP loan program available to you will depend on who currently owns your mortgage.
Here are some frequently asked questions:
Do I Have to Use My Original Lender for HARP?
No. Any lender already set up to do Fannie Mae and Freddie Mac loans can do a HARP loan, despite where the original loan was completed. American United offers both Fannie Mae & Freddie Mac HARP loans.
What is “Loan-To-Value” and is there a Maximum for HARP?
On a HARP loan, there is no set maximum loan-to-value set by Fannie Mae or Freddie Mac. The exception is that Freddie sets a maximum loan-to-value of 105% when the new loan is an adjustable rate. Loan-to-Value, or LTV, is the proposed new loan compared to the property’s value.
- For example: If the proposed loan is $150,000 and the property is worth $100,000, the LTV is 150%
- If the proposed loan is $150,000 and the property is worth $200,000, the LTV is 75%.
Even though Fannie and Freddie don’t set maximums for fixed rate HARP loans, some lenders do.
I Have a Second Mortgage. Can I Use HARP?
HARP programs do allow borrowers to refinance the first mortgage while a second mortgage is in place. However, HARP does not allow the borrower to pay off the 2nd mortgage with an increased 1st mortgage balance. The second mortgage must be “subordinated”, which means it must remain as-is and behind the new first mortgage refinance.
Will I Need Private Mortgage Insurance (PMI) if I Open A HARP Loan?
One of the biggest benefits to HARP loans is that borrowers do not need private mortgage insurance (PMI), even though the new loan –to-value will be above 80%. However, this assumes the current mortgage does not have PMI. If your loan currently has PMI, the PMI will remain on the new HARP loan.
What’s the Difference between the Servicer and the Mortgage Owner?
Your loan must be owned by Fannie Mae or Freddie Mac to qualify for a HARP refinance as stated above. But there’s a lot of confusion around what “owning” the mortgage means. There’s a difference between a mortgage servicer and the entity who owns your mortgage. The difference is as follows:
- Servicer – the entity that collects your monthly mortgage payments, distributes property taxes, homeowners insurance, and mortgage insurance to third parties appropriately. Today’s common servicers are Wells Fargo, Chase, Bank of America.
- Mortgage Owner - the Entity that has ultimate rights to the mortgage and receives most of the interest. This entity may be a different entity than the one that services the mortgage. Remember that homeowners never make their monthly mortgage payment to Fannie Mae or Freddie Mac. For instance, if someone pays Chase or Bank of America each month, the loan may still be owned by Fannie Mae or Freddie Mac. Your American United Lending Professional can help you determine very easily if Fannie Mae or Freddie Mac is the owner of your loan.
Is HARP underwriting guidelines as strict as that of a typical refinance?
No. HARP guidelines are much more liberal than that of a typical refinance. That’s because the purpose of HARP is to help consumers lower their monthly payment in order to make homeownership more affordable, and to encourage consumers to keep their home despite the drop in value. American United embraces the HARP loan program, allowing consumers to refinance even though they might not meet typical credit and income standards.
When Does the HARP Program Expire?
Recently, the Federal Housing Finance Agency (FHFA) extended the HARP program through 2014 to the end of 2015. Those who wish to use HARP to refinance have time, however, there’s no telling whether interest rates will be too high towards the end of the program to make a HARP loan worth doing.
This article was provided by Joe Farella, industry expert and author of the award winning book, “Insider Secrets to Home Buying Success”. Mr. Farella is also the Executive Vice President of American United Mortgage Corporation, Scotch Plains, NJ. For questions about your New Jersey home refinance, feel free to call Joe at 908.322.5423 or via email: email@example.com