Sorohan, Mike
The Federal Housing Finance Agency yesterday announced substantial modifications to the Home Affordable Refinance Program, aimed at making it easier for borrowers with negative equity in their homes.

The Mortgage Bankers Association praised the changes, saying it would allow more borrowers to qualify for HARP loans and streamline the process, enabling lenders and servicers to participate with fewer restrictions and less risk.

HARP was developed in 2009 to assist Fannie Mae and Freddie Mac borrowers who are “underwater” (negative equity in their homes) and who want to refinance their mortgages. Since its inception, HARP has assisted 895,000 borrowers.

However, Meg Burns, senior associate director for congressional affairs and communications with FHFA, who participated in an MBA online conference yesterday, said the agency was aware that a number of borrowers were not taking advantage of the program. She said some borrowers had been “screened out for one reason or another or who simply found the process too difficult to access.”

Burns said the modifications were made with input from lenders, mortgage insurers and other industry participants. “We estimate that we can double the number of borrowers that we have served so far,” she said.

Key changes to the program include:

• Elimination of certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowered fees for other borrowers;

• Removal of the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;

• Waiver of certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;

• Elimination of the need for a new property appraisal where there is a reliable automated valuation model estimate provided by the government-sponsored enterprises; and

• Extension of the end date for HARP until Dec. 31, 2013 for loans originally sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

Additionally, the program will make borrowers in condominiums eligible to use HARP and expand other eligibility guidelines.

“An important element of these changes is the encouragement, through elimination of certain risk-based fees, for borrowers to utilize HARP to refinance into shorter-term mortgages,” Burns said. “Borrowers who owe more on their house than the house is worth will be able to reduce the balance owed much faster if they take advantage of today’s low interest rates by shortening the term of their mortgage.”

MBA President and CEO David Stevens praised the program changes. "The mortgage industry welcomes these changes designed to help more underwater borrowers who are current on their mortgages refinance at today's historically low interest rates,” he said. “Not only will these changes allow more borrowers to qualify, but they will streamline the process and reduce the cost to borrowers and should lessen risk for Fannie Mae and Freddie Mac.”

Stevens said lenders are “particularly gratified” that the refinements could provide relief from some representations and warranties that lenders face when originating new loans. “These changes alone should encourage lenders to more actively participate in HARP,” he said.

But Stevens cautioned that these changes, while ultimately helpful, are “not a silver bullet to solve all the issues facing our housing market and borrowers who owe more on their mortgages than their homes are worth. But they will offer lenders another tool to help borrowers and hopefully help bring some stability to housing markets, particularly those most impacted by home value declines."

Fannie Mae and Freddie mac plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by Nov. 15. FHFA noted since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.

"Borrowers need to be aware that these changes will not be implemented overnight,” Stevens said. “Lenders likely won't receive specific guidance and operational details from the regulators for a couple of weeks, after which it will take a bit of additional time for lenders to implement them. Therefore we ask borrowers for patience as the changes are put into practice.”