Changes to HARP Mean More Borrowers are able to Refinance Home Mortgages

The Home Affordable Refinance Program (HARP), which was introduced in 2009 as an economic stimulus, is aimed at home borrowers with mortgages securitized through Fannie Mae and Freddie Mac.

Essentially, this special financing program is for borrowers who do not have 20 percent equity in their home or who may owe more on their mortgage than their property is worth—a state commonly referred to as being “underwater” on property.

Several important changes to the HARP program were recently announced. The effect of these changes is that many borrowers who were previously disqualified from taking advantage of HARP will now be able to refinance home mortgages at today’s low interest rates.

The most significant of these changes include:

The elimination of underwater limits on the loan-to-value for primary or second homes, including condominiums (mortgage amount could not exceed 125 percent of the home value previously); investment residential properties are limited to the 125 percent loan-to-value
Mortgage insurance no longer being a hurtle if the insurer is approved by the Lender
Second mortgages or home equity lines of credit no longer preventing eligibility with a subordination Agreement from the second mortgage lender
Higher qualifying ratios (e.g. up to 60 percent debt to income ratio)
A minimum credit score of 620
Reducing the window for not having any late mortgage payments to the past six months
If the mortgage has been modified, the borrower must wait two years and have made 24 months of consecutive mortgage payments.
No waiting or seasoning required for bankruptcy, foreclosures or short sales
Borrowers needing to have closed on their first mortgage prior to May 31, 2009; previous requirement was that Fannie Mae or Freddie Mac had to have purchased the mortgage prior to this date

These changes should spur a new wave of refinancing. While some limits on the loan-to-value for adjustable rate loans exist, fixed rate and adjustable rate programs are available.

Now is the time for borrowers who are underwater to revisit their qualifications and seize the opportunity to refinance to more solid footing if possible.

Contact Stephen Barnett, Ph.D., Managing Director of WhiteKnight Solutions LLC, for assistance and questions regarding individual refinancing opportunities. WhiteKnight Solutions is a consultancy that provides targeted investment banking services to lower middle market and emerging growth companies. Stephen may be reached at 561.953.1421 or steve@whiteknightsolutions.com.