Requirements for loan-to-value limits, mandatory appraisals and representations and warranties have been removed from the Home Affordable Refinance Program.
HARPÂ was launched as part of the Homeowner Affordability and Stability Plan in March 2009. The program was expected to help between 4 million and 5 million borrowers.
But only 894,000 refinances have been completed through the HARP program as of Aug. 31, the Federal Housing Finance Agency said in an announcement Monday about program enhancements. FHFA regulates Fannie and Freddie and their $5.7 trillion in mortgages.
Calling any projections about expected volume from the enhancements “difficult” and “inherently uncertain” because of so many moving parts, FHFA said that its best estimate is that the changes will double the number of transactions already closed under the program.
FHFA explained that while the program changes are designed to reach more borrowers, they aren’t intended to reach all borrowers.
“Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the enterprises,” FHFA Acting Director Edward J. DeMarco said in the statement. “Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”
The initiative was originally scheduled to run through June 2010. But today’s statement again extended the life of the program, this time until Dec. 31, 2013.
Eligible loans need to have been sold to either secondary lender on or before May 31, 2009. No late payments are allowed in past six months, and a maximum of one late payment is allowed for the prior 12 months.
Borrowers can use any lender that provides HARPÂ refinances.
The 125 percent loan-to-value limit is being removed on HARP transactions.
“There is no longer a maximum LTV limit for borrower eligibility,” the FHFA stated. “If the borrower refinances under HARP and their new loan is a fixed rate mortgage, there is no maximum LTV.”
The loans must be backed by Fannie or Freddie and be fixed-rate, but adjustable-rate mortgages will be allowed as long as the LTV doesn’t exceed 105 percent. The minimum LTVÂ is required to be higher than 80 percent.
Another big obstacle, representations and warranties, is being waived.
The FHFA explained that credit risk is being reduced through HARP transactions, and nearly all HARP prospects have been paying their mortgages on-time for more than three years.
Representations and warranties protect Fannie and Freddie from losses that typically show up during the first few years of a loan. This brings down the value of representations and warranties over time.
“By refinancing into a lower interest rate and/or shorter term mortgage, these borrowers are re-committing to their mortgage and strengthening their household balance sheet, thereby reducing the credit risk they already pose to the enterprises,” the announcement said. “Therefore, FHFA has concluded that eliminating the reps and warrants that may have discouraged industry participants from taking greater advantage of HARP to-date will be good for borrowers, housing markets, and the enterprises and taxpayers.”
David H. Stevens, president and chief executive officer of the Mortgage Bankers Association, issued a statement saying that the representation and warranties changes alone should encourage more lender participation in HARP.
Automated valuation models will be accepted in lieu of new property appraisals. AVMs can be used where “reliable” and provided by Fannie or Freddie. Where reliable AVMs are not available, new appraisals will be required.
Some risk-based fees are being eliminated for borrowers who refinance into shorter-term loans. By moving borrowers into shorter-term mortgages, their loan balances will decline much faster at today’s low rates.
“Such an outcome may strengthen the borrower’s financial condition and lower the credit risk for the enterprise that owns or guarantees the loan,” the regulator said.
The FHFA used an example of a borrower with a $200,000 loan who would take 10 years after a 30-year refinance to bring the balance down to $160,000. But a 20-year borrower would pay less than their current payment and reduce the balance to $160,000 in just 5.5 years. For a 15-year borrower who winds up paying just $190 more than the pre-refinance payment, the balance is cut to $160,000 in just 3.5 years.
Other borrowers will see reduced fees.
Loans that were previously refinanced through HARP are excluded unless they closed between March 2009 and May 2009.
Condominiums continue to be HARP-eligible.
“With mortgage interest rates at historic lows, we believe it is an opportune time to put the industry’s experience with the program to work so more eligible borrowers can refinance Fannie Mae or Freddie Mac-owned mortgages,” FHFA’s statement said. “Importantly, such refinances bring benefits to borrowers, to housing markets, and to the enterprises and taxpayers.”
Michael J. Williams, Fannie’s president and chief executive officer, issued a statement calling the enhancements a “welcome development.”
Freddie Mac CEO Charles E. Haldeman Jr. said in a statement that the “changes mark another step on the road to recovery for the nation’s housing market.”
Guidance from Fannie and Freddie is expected by Nov. 15.
There are no HARP deadlines for lenders or mortgage insurers since the program isn’t mandatory.
In all, around 9 million refinances have occurred on Fannie and Freddie loans since April 2009.
