Homeowners who haven't refinanced their mortgage because they owe more than their home is worth might have another shot at refinancing now that the Federal Housing Finance Agency (FHFA) has extended the Home Affordable Refinance Program (HARP) until Dec. 31, 2015. That's the good news. The bad news is that the HARP rules remain unchanged, and while the extension might help some homeowners, others will still face the same refinance hurdles.
No HARP 3.0Rumors have been swirling for some time that adjustments might be made to the current HARP 2.0 guidelines, says Kirk Chivas, chief operating officer at First Commerce Financial, a mortgage company in Wixom, Mich. For instance, some borrowers could benefit from a later loan-origination-eligibility date or the ability to use HARP more than once, says Chivas. The current guidelines require loans to be originated on or before May 31, 2009 and restrict HARP to one refinance per borrower. FHFA Senior Policy Analyst Michelle Murphy says there are no plans at this time to change the eligibility date or allow multiple HARPs. Might other aspects of the program be changed in a sweeping HARP 3.0? FHFA won't say. Rather, Murphy explains, the agency is "focused on borrower awareness to encourage eligible homeowners to take action." Nearly 100,000 HARP refinances were completed in February 2013, bringing the total to 2.3 million since the program's inception in April 2009, according to FHFA.
HARP restrictionsRegardless of when HARP expires, many homeowners will still be unable to refinance through the program chiefly for these reasons:
- Bad credit. Some borrowers can't qualify due to impaired credit or too many late payments on their existing mortgage."The people who have these challenges have them for a reason," Chivas says. "There's nothing we can do to help them other than say, 'Pay your bills on time.'"
- Inadequate equity. HARP has no maximum loan-to-value (LTV) ratio for borrowers who obtain a new fixed-rate mortgage and a maximum LTV ratio of 105 percent for borrowers who get a new adjustable-rate mortgage. But lenders typically impose their own guidelines, called "overlays," which may include stricter LTV caps.Chivas says some lenders have loosened their LTV guidelines, raising maximums from, say, 105 percent to 135 percent or 125 percent to 150 percent.
"As home values have continued to increase, that has helped," he says.
- No re-HARPs. The inability to use HARP twice is a source of frustration for borrowers who tapped the program when mortgage rateswere higher than they are today."They HARP'd already and took a rate of, say, 5 percent," Chivas says. "They're not pleased because they feel that they pulled the trigger too early."The average interest rate on a conforming 30-year fixed-rate mortgage in May 2009 was 5.05 percent, according to HSH.com. In May 2013, that rate averaged 3.68 percent.
- Fannie and Freddie. Another source of frustration for borrowers is that they can't use HARP unless their existing loan is owned or guaranteed by Fannie Mae or Freddie Mac.Chivas says borrowers who don't have a Fannie Mae or Freddie Mac loan are "getting hammered" because their loans have rates of 5, 6 or 7 percent, they don't want to move, but they don't have enough equity to refinance without HARP."They're stuck," he says.
Call and askBorrowers who haven't yet refinanced through HARP should contact their lender to find out whether it is an option, says Joe Rogers, executive vice president at Wells Fargo Home Mortgage in Charlotte, N.C. "The best thing for homeowners to do is visit their lender and discuss the requirements to be eligible for HARP and if there are ways for them to position themselves for approval if they're not meeting the guidelines," he says. Murphy says borrowers who've previously been denied for HARP should try again or shop around. "Call your current lender and share with them that you want to explore a HARP refinance," she says. "If you're denied, find out the reason and don't be discouraged. You may be able to refinance with another lender."
Chivas says borrowers who don't qualify for HARP, but have at least some equity might be able to refinance with private mortgage insurance (PMI)."A lot of folks refinance with minimal equity positions," he says. "They have 5 percent, 10 percent or 15 percent, and they've taken a new loan with PMI." To calculate the best way to finance your refinance, be sure to use a mortgage refinance calculator.