16 Nov 2011
The new HARP 2.0 guidelines were released at the end of the day and there really isn’t anything earth shattering just yet from the announcement. So what are the meat and potatos of HARP 2.0?
No LTV & CLTV Restrictions on Fixed Rate Mortgages: Loans that qualify under HARP no longer have LTV and CLTV restrictions. This means you can be significantly underwater and still refinance if you have or are getting a fixed rate term. ARMs and mortgages with greater than 30 year amortizations are limited to 105% LTV; however, no restrictions on CLTV.
Lower LLPAs: Loan Level Price Adjustments are basically what Fannie Mae & Freddie Mac charge mortgage lenders for making loans to borrowers who aren’t perfect These are being limited to .75 bps which is a significant improvement. What this means in layman terms is that mortgage rates will be more competive for borrowers who may have less than perfect credit scores, higher LTVs, condos, etc.
No LLPAs on 20 Year or Less Amortizations: In order to encourage homeowners to payoff their mortgages, the LLPAs have been entirely removed on shorter amortization loans. This should make shorter amortizations more attractive by allowing borrowers to qualify for lower rates.
No Income Verification: It looks like there may not be a need for income verification if the borrower has maintained on time payments for at least six months and no more than one thirty day mortgage late in the past year. However, income verification is required if the new principal & interest payment is increasing by more than 20%. This could be a good thing for many borrowers who are self employed or who may not meet current guidelines but are still able to make their mortgage payments.
Bankrutpcy/Foreclosure/Short Sale: The time requirement for each of these has been removed so it seems as if borrowers who may have filed bankruptcy, had a foreclosure or short sale may be eligible.
At the end of the day, it remains to be seen exactly how much this will help current homeowners who want to take advantage of lower rates. There are still some issues with the program that have not been addressed. The first is that the mortgage must have been originated prior to June 2009 which excludes a ton of current homeowners. Removing this hard date would open up the program to recent borrowers as well as those who may have refinanced already; many of which are above current market rates.
Second, HARP remains voluntary so we will see if lenders impose their own “overlays” on the guidelines. Lenders are not required to follow these guidelines to the letter. There are still questions if second mortgage lenders are going to subordinate without an appraisal or an unlimited CLTV. Mortgage insurers will also have to play as well.
The program is supposed to be available for applications on or after December 1st, 2011. However, LTVs above 125% may have to wait till March 2012. It isn’t clear why this takes four months to implement .
My prediction is that we may see some refinances that were previously locked out, but I am not expecting a huge refinance boom under these guidelines. This program will help some people, but it is not going to save the housing market. There are still millions of loans that aren’t Fannie and Freddie backed that can’t refinance so until those mortgage are systematically addressed, this will continue to be a like taking an aspirin for a gun shot wound in my opinion.
You can see if your loan may be eligible for HARP by clicking on the Fannie Mae or Freddie Mac Loan Up links on the far right column of this blog. Alternatively, you can just give me a call to see if you qualify.