Breaking News:  The Federal Housing Agency has eased refinance standards under the Home Affordable Refinance Program (HARP) in order to help homeowners qualify for current low rates.  The modification eliminates the cap of 125 percent loan-to-value ratio, removes the representations and warrants rule, and reduces some of the program fees.  The program is directed at “responsible” homeowners that have a mortgage backed by Freddie Mac or Fannie Mae, and are current on loan payments, but are not able to take advantage of the low rates for refinance due to a loss of home equity.

The original HARP program was passed in 2009 under the Obama Administration and has been underwhelming.  When passed, the program sought to bring relief to 5 million struggling homeowners with Fannie Mae or Freddie Mac backed loans, but only 894,000 have refinanced thus far.  Part of the problem has been that banks are reluctant to fund loans over 105 percent LTV due to an assumed risk, in which banks assume liability for any mistakes during underwriting and must purchase back the loan from Freddie or Fannie.  With the cancellation of this representations and warrants rule, it is hoped that banks will loosen lending standards.

This time around the program has lower standards, and is aiming to enable another one or two million refinances.  With 11 million homeowners underwater, many analysts say that the action is not enough and the impact will be minimal.  Other analysts suggest that there is little reason to think banks will relax lending standards further.  Some are optimistic, stating that refinance to record low rates will free up money for families to spend in other places.

FBR analyst Paul Miller told the San Francisco Chronicle that Fannie and Freddie still have 22 to 23 million mortgages with an interest rate above 5 percent.

Some specifications are as follows:

-         Loan must be owned by Freddie Mac or Fannie Mae on or before May 31, 2009. You can check HERE for Freddie Mac and HERE for Fannie Mae.

-         Eliminates 125 percent loan-to-value cap on refinancing.

-         Must be current on loan payments over last 6 months, and can only be late once over last year.

-         Fees will be waived with refinance to lower loan duration (from 30 years to 20 for example).

-         Elimination of representations and warrants rule for banks to reduce risk for banks and encourage looser loan standards.

-         Qualifying income does not change.

If you have any questions about the program specifics and want to learn more, give us a call at 805.543.LOAN.  Use us as a free resource.

UPDATE: We have had a few questions about the program, and we wanted to provide some clarity.  We have yet to receive the exact details of the program, only the general framework.  As details are released (such as on fee waivers, and so on) we will provide them here.