Home Economics: HARP 2.0 is up and running

At long last, HARP 2.0 is available to Fannie Mae and Freddie Mac borrowers who want to refinance but owe more on their mortgages than their houses now are worth.

HARP 2.0 - HARP stands for Home Affordable Refinance Program - is being billed as an improvement over the three-year-old version that just about everyone acknowledges didn't help anyone.

The reason for that failure: The original program had limits on loan-to-value ratio, the amount of a mortgage as a percentage of the appraised value of a property. If the balance of a mortgage exceeded the appraised value - say, $300,000 versus $150,000 - the borrower wasn't allowed to refinance.

Recognizing that none of the borrowers the program was intended to help would be able to qualify, the limits were dropped when the new version of HARP was heralded in October.

Does that mean all lenders have agreed to no limits?

"I have lenders that have limited the loan-to-values. Some have even differentiated between attached and detached homes," said Philadelphia mortgage broker Fred Glick, who has launched a blog, http://harp2.com, to update consumers. "They still are limiting what they will do" with LTVs of 150 percent and no more.

"All in all, it is a great way to get people's rates down in spite of low values," Glick said. "This will decrease the supply of homes for sale and increase values over the long run."

As with all these programs, the months since HARP 2.0 was announced have been spent trying to get lenders on board - no easy task since Fannie and Freddie loans are pooled as mortgage-backed securities that are owned by many investors. All the investors need to agree before you can apply to reduce your monthly payments to today's low fixed interest rates, which remained under 4 percent for many months but now are beginning to increase as bond yields rise in an apparently improving economy.

As of March 17, HARP 2.0 has been in place to, theoretically, help you keep your house above water. About four million Fannie Mae and Freddie Mac borrowers nationwide owe more on their mortgages than their homes are worth. To determine whether either enterprise owns your mortgage, check at http://fanniemae.com/loanlookup and http://freddiemac.com/mymortgage.

Those links also can be reached through http://www.makinghomeaffordable.gov, which has details about HARP 2.0 and other information.

(If your underwater loan is not owned by Freddie or Fannie, or insured by the Federal Housing Administration, which has its own streamlined refinancing under a program announced in January, you might be eligible to refinance under provisions of the recent National Mortgage Settlement. Details of that settlement are being worked out, and eligible borrowers will be notified by the five participating lenders - Wells Fargo, Bank of America, JPMorgan Chase, Ally, and Citibank - at some point. The Center for Responsible Lending has a downloadable consumer's guide for that program at http://goo.gl/2FZKM.)

To be eligible for HARP, you must be current on your mortgage. That means paid in full up to date, with no record of late payments in the last six months, and only one in the last 12. You'll also need to show that you can afford the new payments gained through refinancing without any trouble.

You must have closed on your current mortgage on or before May 31, 2009, and never have refinanced through HARP before. In addition, your mortgage must fall under current "conforming-loan limits." In the eight-county Philadelphia region, that limit is $417,000.

If you meet all those requirements, call your lender to see if you are eligible to refinance.

One thing both Fannie and Freddie want to see is whether borrowers refinance to loans with terms shorter than 30 years. They call this "movement to a more stable product."

If you currently have an interest-only loan, you will be urged to refinance to a mortgage product that provides amortization of principal and accumulation of equity in the property.

If you have an adjustable-rate mortgage, you will be encouraged to refinance to a fixed-rate loan that eliminates the potential for payment shock, or to an adjustable with an initial fixed period of five years or more and equal to or greater than the existing mortgage.

If you have a 30-year fixed-rate mortgage, you will be advised to refinance to a 15-, 20-, or 25-year fixed that offers, in Fannie Mae's words, accelerated amortization of principal and equity-building. You will not be allowed to cash out equity under this refinancing "except for closing costs and certain allowances to cover items such as association fees, property tax bills, insurance costs, and rounding adjustments."

Plus, borrowers may not satisfy subordinate financing in the form of a home-equity line of credit or a closed-end second mortgage with the proceeds of the refinance mortgage.

Balloon mortgages and convertible adjustable-rate mortgages are eligible for HARP 2.0 if the conditional right to refinance the balloon or convert the ARM was exercised by the borrower and "redelivered" to Fannie Mae before June 1, 2009.

To access Fannie Mae's frequently asked questions file, go to http://goo.gl/pN54x.

Many of the rules and regulations outlined in the latest information from Fannie and Freddie are far beyond the understanding of the typical homeowner, and, as the government warns, scam artists are already hovering above borrowers, waiting to pounce.

For information about mortgage-assistance-relief scams, visit http://FTC.gov.