President Obama will announce changes in the government’s Home Affordable Refinance Program (HARP) on Monday, aimed at making it easier for homeowners to capitalize on current low-interest rates by refinancing their old, high-interest mortgages.
More than 890,000 Americans with underwater mortgages have already utilized the HARP program to reduce monthly mortgage payments but millions more have not. One reason: The current rules do not permit severely underwater borrowers to participate.
The new rules will allow homeowners who owe more than 125% of the market value of their homes — $125,000 in mortgage balance on a home worth less than $100,000, for example — to get new loans.
The program will also streamline the refinancing process for those who have been current on their mortgage payments and it will reduce or remove fees that had hindered homeowners from refinancing in the past.
“We know there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said Edward DeMarco, acting director for the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac..
Jaret Seiberg, an analyst for MF Global Inc.’s Washington Research Group, which analyzes public policy for institutional investors, said lifting the loan-to-value restriction will help only a limited number of borrowers.
“This change is unlikely significantly to expand the universe of eligible HARP borrowers as the borrowers must still be current and qualify for a new loan,” he said in a research report.
However, Seiberg believes, the changes should allow banks to refinance loans without fear that Fannie Mae and Freddie Mac will force them to repurchase those loans if the borrower defaults.
Fannie and Freddie will also reduce the fees they have charged in the past in order to enable borrowers to better afford the new loans. Among the fees that will be reduced or eliminated are those for appraisals, title insurance and closing costs.
Fees will also be waived for some underwater borrowers who refinance into 20-year or other, shorter-term loans. By doing so, it could help homeowners get above water faster.
A homeowner who has a $200,000 balance on their 30-year mortgage with a 6.5% rate and a home value of $160,000, for example, currently makes payments of $1,264 a month.
If they refinance into a 20-year fixed-rate loan at 4.25%, it will reduce their monthly payments to $1,238 and slash their loan balance to $160,000 in just five-and-a-half years. If they refinance to a 30-year loan at 4.5%, their monthly payments will be quite a lot lower, $1,013, but it will take 10 years to reach $160,000.
“It’s an opportunity for borrowers to improve their household balance sheets by repaying their mortgages much quicker,” said DeMarco.
HARP is only open to borrowers who are current on their payments for the past six months with no more than one missed payment in the past 12 months. The loans must have been originally issued before May 31, 2009 and purchased by Fannie Mae or Freddie Mac.