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Understanding the New HARP Home Refinance Program.

Understanding the new HARP home refinance program.

Effective December 1st, 2011 new changes to the government’s Home Affordable Refinance Program (HARP) offer hope for homeowners paying their mortgages on time, but unfortunately owe more than their home is worth.

Here’s a look at some of the key elements of the changes to the government-backed mortgage refinance program, announced by the Federal Home Finance Agency (FHFA).

Loan-to-value restriction reduced

The first thing that jumps out is how far your home has fallen in value since you took out your mortgage is no longer a consideration.

Previously, HARP limits triggered if your mortgage balance exceeded your home value by more than 25 percent. That limit has been totally eliminated, making refinance even if your home value is a third of what you owe on your mortgage, or even less!

Fees Reduced

The new HARP rules waive certain fees charged at closing, particularly for borrowers who choose to refinance into 15- or 20-year fixed-rate mortgages. Closing costs have been seen as a barrier to HARP financed transactions, so FHFA is hoping that waiving these fees will attract more interest to refinance. With values no longer an issue, appraisals are no longer required, provided a reliable automated estimate is available, provided participating lender overlay’s do not say otherwise.

Some fees associated with closing costs on the new loan, however as customary with most refinance transactions, can be financed into the new mortgage.

What types of Loans are covered under HARP?

HARP transactions are available to borrowers who have mortgages backed by Fannie Mae or Freddie Mac. To find out if your loan is already owned by Fannie or Freddie, you can check on their websites at www.fanniemae.com or www.freddiemac.com . The Fannie or Freddie owned loan must have been on their books prior to May 31st, 2009. One to 4 unit dwellings.

Who’s eligible?

Provided your loan is already owned by Fannie or Freddie, you are required to have been current on your mortgage payments for the last six months and been late a maximum of once in the last 12 months.

How much can I save?

Underwater borrowers refinancing through the program will save an average of $2,500 a year on their mortgage payments, or more than $200 a month, according to Shaun Donovan, Secretary of the Department of Housing and Urban Development. The government estimates the changes to the program will benefit up to 1 million people, although Moody’s Analytics puts the figure at 1.6 million. The Obama administration may be a bit cautious after their original estimates for borrowers helped by the current version of HARP and its companion HAMP loan modification program turned out to be too optimistic.

What kind of loans can I get?

This is a significant change from the current HARP. The administration is encouraging underwater borrowers to refinance into short-term 15- and 20-year fixed-rate mortgages by waiving most or all program fees for those loans. The current program mandates that borrowers refinance into 30-year fixed-rate mortgages only. Homeowners will still be able to refinance into 30-year loans if they wish, but they’ll have to pay more fees if they do. Combined with the ultra-low rates now available on 15-year mortgages, that’s a significant prod for borrowers who’ve been in their homes a number of years to shorten up their term and start building back more quickly toward positive equity.