The plan is an expansion of the current program called HARP, The Home Affordable Refinance Program initiated in 2009 to let homeowners refinance their mortgages to lower rates. This new expansion is meant to help borrowers who are current on their home mortgage payments, but cannot refinance because they do not have enough equity in their home, or are underwater – which means they owe the bank more than their home is worth. According to CoreLogic, a real estate data firm, approximately 22.5% of U.S. homeowners are underwater representing about 11 million.
When the Obama administration launched HARP in 2009, it was hoped that the program would help 4 to 5 million homeowners. But as of August 31st fewer than 900,000 homeowners had been assisted by the program. The Obama administration hopes that this expansion will help as many as 800,000 additional homeowners. But will it help struggling homeowners and strengthen the housing market – a market that is a corner stone to any sustainable economic recovery.
Many believe that this new opportunity to refinance will be most helpful to those borrowers that owe less than their original mortgage, but not the 20% or more in equity that banks now require. But the program is primarily aimed at borrowers that are current in their mortgage payments, but owe more than their homes are worth – underwater. The problem since 2009 with the “old” HARP is that banks are under no obligation to refinance a mortgage underwater and this does not change with this new plan.
So are you eligible to refinance your mortgage – even if you are underwater? If you have a mortgage loan backed by Fannie Mae or Freddie Mac you may qualify for the refinancing program if your loan was sold to Fannie or Freddie BEFORE June 2009. You can find out if your loan was sold by going online at www.freddiemac.com/mymortgage or www.fanniemae.com/loanlookup. If your mortgage was refinanced over the past 2 ½ years, you will not be eligible for refinancing – you probably already have a good interest rate anyway. Additionally, you MUST be current on your mortgage. One late payment in the past six months or more than one in the past year makes you ineligible.
What are the new program changes? Homeowners may be eligible no matter how far their home value may have fallen. Some fees for closing, title insurance and other processing fees will be eliminated making refinancing less expensive and the number of homeowners that will need appraisals will be reduced. This biggest incentive for banks – they won’t have to buy back the mortgages from Fannie or Freddie as they previously had to do, even if the bank considered the loan risky. This change alone may spur banks to work with people sincerely trying to keep their homes. Fannie and Freddie are due to release the full details of the plan on November 15 and the program could be offered as early as December 1, 2011.
If you believe that you may be a candidate for this expanded refinancing program, plan to contact your bank in the coming weeks to determine if they are willing to work with you to lower your monthly payments. This additional help for homeowners is long overdue, but it will take some time to see if this enhanced program will be a success.
Pamela Sandy, CFP®
CONFIANCE, LLC, Financial & Investment Advisors