The article below is from LATimes.com and we thought it did a fantastic job of explaining HARP in layman’s terms.
Making Home Affordable Program May Enable Millions to Refinance Mortgages
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Borrowers whose loans are owned or guaranteed by Fannie Mae or Freddie Mac could be able to get quick refinances for up to 105% of a home’s value.
So you want to refinance your house, but it’s not worth enough for you to get a good loan in the current market? A new Obama administration program is designed to fix that problem for millions of homeowners.
Here’s how it works. In the past, the federal Fannie Mae and Freddie Mac mortgage programs would only handle loans of up to 80% of your home’s value, unless you bought mortgage insurance. And if you owed more than your home was worth, you were flat out of luck.
As of this month, that has changed. Through June 2010, borrowers whose loans are owned or guaranteed by Fannie or Freddie may be able to get quick refinances for up to 105% of a home’s value. They must be current on their mortgage payments, but administration officials estimate that as many as 5 million homeowners qualify. And refis are available for borrowers with credit scores as low as 620.
“This is going to create a real opportunity for millions of people to save money on their mortgages — or replace an adjustable-rate mortgage with a fixed rate,” Freddie Mac spokesman Brad German said.
First, the rationale for the program.
As federal interventions go, encouraging refinancing may not compare with the $182.5 billion bailout of American International Group Inc. But a homeowner with a $500,000 loan can save $476 a month by cutting a 6.5% interest rate on a 30-year mortgage to 5% — savings that can be plowed back into the economy or can reduce the odds of foreclosure should the downturn deal the borrower a financial blow.
The historically low rates also make this a perfect time to replace a bubble-era adjustable-rate or interest-only loan with a traditional 30-year or 15-year fixed mortgage.
Switching to a fixed rate might mean higher payments initially, because of an artificially low payment on the adjustable mortgage, but guards against even higher payments in the future should rates skyrocket during an inflationary period, German pointed out.
Now, some caveats about the new refinance program:
For starters, it’s only for folks with solid payment histories. You’re allowed to have been 30 days late on a single monthly mortgage payment once during the past year, but no more than one, and no 60- or 90-day late payments. (A separate Obama administration program encouraging loan modifications for struggling borrowers is also explained at makinghomeaffordable.gov.) What’s more, the refinancing only work for mortgages owned or guaranteed by Fannie Mae or Freddie Mac. Still, about 40% of all U.S. home loans are Fannie or Freddie loans, Faith said, so millions will be covered.
Borrowers who owe less than 80% of their homes’ values are not eligible. They have the opportunity to turn to standard refinancing, a currently white-hot market that, as Kathy M. Kristof reports in an accompanying story, can require jumping through a host of financial hoops these days.
There are financial limits to the largess, though. The maximum Fannie or Freddie loan is $729,750 in Los Angeles, Orange, Ventura and Santa Barbara counties, $697,500 in San Diego County, and $500,000 in Riverside and San Bernardino counties. Larger “jumbo” mortgages carry a heavy premium.
The erosion of home prices in former boom regions such as California is also a factor because a lot of people owe more than 105% of what their home is worth.
Finally, although the government-sponsored Fannie and Freddie refinancing are designed to encourage lenders to make new loans, the program is entirely voluntary. On its informational website, the government tells borrowers to exercise patience because lenders and servicers are just starting to implement the program, “and there may be a slight delay before they are prepared to process all applications.”
If you think you’re eligible and want to check, an initial screening test is available at the government website, including directions on how borrowers can determine if their loan is owned or guaranteed by Fannie or Freddie.
The David M. Damaré Team is available to answer all of your questions concerning the HARP Program. To find out if these programs are right for you or if you qualify, contact The David M. Damaré Team at 919-851-0999.