A life vest for homeowners with underwater mortgages

A life vest for homeowners with underwater mortgages

Suffering from a severely underwater mortgage (when you owe more than your house is worth)? Good news: President Obama’s new mortgage rules may help.

The new plan is a much-needed revamp of HARP (the Home Affordable Refinance Program), which was introduced in 2009 to lower borrowers’ monthly payments and help them stay in their homes. The Obama administration expected HARP to help up to 5 million homeowners. But, so far, it’s aided fewer than 900,000. Mission: unaccomplished.

Part of the problem was that the old HARP wasn’t open to folks who owed more than 125 percent of what their homes were worth. Now, borrowers can refinance no matter how much their property’s value has fallen. Costly appraisals—necessary to apply for HARP—have also been a barrier. Under the new rules, they won’t be required in many cases; Fannie or Freddie can just ballpark values based on similar homes. Lastly, fees for refinancing to a short-term mortgage will also, thankfully, be eliminated. All adding up to more money in homeowners’ pockets.

With the new-and-improved HARP, the government hopes to attract 1 million more participants. If you’re in the market to refinance, here’s how to tell if you’ll qualify (and be able to take advantage of today’s very tempting, record-low mortgage rates):

  • Mortgages must be under Fannie Mae or Freddie Mac, and taken out before May 31, 2009. Not sure about yours? You can double-check by looking up your loan at MakingHomeAffordable.gov.
  • 80 is the magic number. To assess how risky it is to let you refi, lenders look at a measurement called your loan-to-value (LTV) ratio, which compares your mortgage to the value of your home. To qualify for the new HARP, your LTV must be above 80 percent. For example, say your home is worth $400,000 and you owe $350,000 on your mortgage. That means your LTV is $350,000/$400,000, or 81 percent, so you could qualify. To find out your LTV, try Bankrate’s Mortgage Loan-to-Value Calculator.
  • Being current is key. Borrowers must have made no late payments in the last six months, and no more than one late payment in the last year. This is why I’m always nagging you to pay bills on time. (Though I understand that for those struggling, sometimes there’s no alternative.)
  • No repeat visitors. If you’ve already refinanced your home under HARP, sorry Charlie, you’re disqualified from this round.

If you do qualify, hold tight until November 15, when Fannie and Freddie will provide guidelines to lenders. Keep in mind that participation in HARP is not mandatory for lenders (Chase and GMAC have signed on so far), and timing and implementation is up to them (Chase, for example, won’t adopt the LTV guidelines until 2012). In the meantime, call your lender to ask if they will participate, or, if they won’t, what other options may be available to you. And don’t delay too long: the program is only extended through Dec. 31, 2013.

Will you try to take advantage of HARP?

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