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Refinancing Without HARP

October 1, 2012

If you’re one of the millions of homeowners with an underwater mortgage who would still like to refinance but can’t qualify for HARP (the federal Home Affordable Refinance Program), there are still some options. Though limited to borrowers in specific situations, you can still refinance a negative-equity mortgage even if you don’t qualify for HARP as long as your mortgage loan is backed by the FHA or VA.

Provided you’ve kept up with your mortgage payments, both FHA and VA mortgage loans offer what is known as “streamlined” refinancing that enables you to be approved for a refinance almost automatically. In fact, credit scores, appraisals, proof of employment aren’t necessary no matter how much the value of your home has fallen below what you owe on the loan. But it’s important to remember there are criteria that must be met.

For a VA or FHA streamline refinance, you must be current on your mortgage payment and not have missed a payment within the last 12 months. On an FHA loan you must not have missed a payment within the last six months and have no more than one late payment in the past 12 months. And of course there are certain limitations as well. If you have a second mortgage, it must be subordinated into the new loan in order for the refinance to be approved. Also, with a streamline refinance, whether on an FHA or VA loan, you cannot take cash out.

Streamlined refinancing is also available for borrowers whose mortgage is a Rural Development Loan through the USDA. This pilot program is available in 19 states, including Missouri. The biggest restriction most people encounter when trying to refinance with HARP is that the program is only for mortgages backed by Fannie Mae or Freddie Mac. Other loans like stated-income loans and many option-ARMs didn’t qualify for Fannie or Freddie backing.

But there are options opening up for borrowers with mortgages that weren’t backed by Fannie Mae or Freddie Mac. A $26 billion foreclosure abuses settlement reached between the government and the nation’s five largest banks has $3.5 billion in funding that’s dedicated to refinancing underwater mortgages with non-Fannie Mae or Freddie Mac loans. If you have a mortgage that is not backed by Fannie Mae or Freddie Mac and have kept up on your payments, it doesn’t hurt to inquire whether or not you might qualify for refinancing.

There are also new programs in the works. Just last week, the White House encouraged a vote on a refinancing expansion bill. The bill would expand the HARP program by not forcing lenders to absorb the loss on defaulted refinanced loans even if the original loans didn’t meet Fannie Mae and Freddie Mac required standards. As it stands now, liability for bad loans is only waived when lenders refinance loans they already serviced. This is why many lenders are refusing to refinance mortgage loans serviced by other banks. The new bill would eliminate the distinction. Additional changes to the bill include limiting how many times borrowers can refinance under the HARP program.

With an election weeks away, legislators will certainly want to appeal to the votes of frustrated homeowners. Whether both parties can come together on the issue remains to be seen.

"By being open and recognizing our strengths and weaknesses, we can see opportunities for growth and ways to help each other."

- Jayson Hardie on Growth

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