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HARP Loan Program Updates

FHFA Gives HARP Streamline Refinance New Hope

HARP Conventional Streamline Refinance

The Federal Housing Finance Agency (Fannie Mae and Freddie Mac’ governmental regulatory agency) detailed its plans to expand the Home Affordable Refinance Program (HARP Conventional Streamline Refinance). These changes are a reflection of President Obama’s recent speech illustrating pending improvements to the program. Some of the Main Changes are:

• Fannie Mae and Freddie Mac will waive certain representations and warranties that lenders commit to in making HARP Conventional Streamline Refinance loans. This could possibly be the biggest change made to HARP.

Modifying Lender Warranties and what it means

In my opinion, this component is one of the biggest modifications to the existing HARP program. Here is what happens in the background as a Fannie Mae or Freddie Mac loan is originated. When a lender originates a loan that is intended for Fannie Mae or Freddie Mac, they are in fact creating a loan that by design is going to be sold to one of them from the beginning. When the lender sells the loan to Fannie Mae or Freddie Mac, they are often required to provide a “warranty” on the loan which, in affect holds them responsible and requires the lender to buy the loan back in some instances. These instances can include the homeowner defaulting on the loan, incomplete loan packages, improperly underwritten loans or, loans determined to be originated with fraudulent aspects to it. One of the biggest concerns lenders had with the original HARP program was due to the “warranty clause”. Even though HARP allowed lenders to finance up to 125% of the value on a first mortgage, most lenders would not lend to this value due to the risk of having to warranty a loan for a home that was significantly upside down in value. So, most lenders would only offer loan programs up to 105% of the home’s value. By removing parts of the lender warranties, Fannie Mae and Freddie Mac are taking on more of the risk. This should be an incentive to lenders to offer higher Loan to Value products.

• The program will remove the current restrictions on the estimated value of property. It will no longer be a requirement to assess properties for 125% of the value of the loan. This is great news for homeowners who live in a part of the housing market hit hardest real estate value declines. The FHFA hope this change will be implemented in the first quarter of 2012. HARP has now been extended until December 31st, 2013. This will give Fannie Mae, Freddie Mac and all the participating HARP lenders plenty of time to implement changes.

• HARP intends to expand its preference for Automated Valuation Models (AVM’s) instead of requiring a full appraisal which will help reduce the cost to the homeowner.

• The program is intentionally reducing the costs of refinancing short-term loans like the (15 yr). This is a significant change. The intention is incentivize homeowners to reduce the term of their mortgage so as to reduce the principal balance faster.

These changes are expected to make it much easier for homeowners that have Conventional loans to streamline their existing mortgage, much like homeowners with FHA loans have been doing for as long as I can remember.

So, the HARP Conventional Streamline Refinance program should be a big winner for homeowners desperate for payment relief.

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