The Federal Housing Finance Agency
removed several key barriers to the Home Affordable Refinance Program Monday to allow more underwater borrowers to move into lower-rate mortgages.
HARP, which launched in March 2009, helped 838,000 Fannie Mae
and Freddie Mac
borrowers with loan-to-value ratios between 80% and 125% refinance. But roughly 7% of those held LTVs above 105%.
In order to assist more of the estimated 11 million borrowers who owe more on their mortgage than their home is worth, the FHFA removed the 125% LTV ceiling on the program.
The FHFA also eliminated certain risk-based fees borrowers had to pay and waived certain representation and warranty risk for lenders of the new, refinanced mortgage. An appraisal would also no longer be required if an automated valuation model estimate was already provided by the government-sponsored enterprise.
HARP was already extended earlier in the year, but the FHFA committed to pushing the program end date out even further to Dec. 31, 2013 for loans originally sold to the GSEs on or before May 31, 2009.
The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months, the FHFA said.
Mortgage insurers agreed to automatically transfer coverage from the old loan to the new loan, and servicers agreed to resubordinate second liens into the new refinanced mortgage.
Fannie and Freddie will release more specific operational details for servicers and lenders by Nov. 15.
The FHFA could not give a specific number of borrowers the revamped program could reach, but in its published frequently asked questions, the agency said the "the best estimate is that by the end of 2013 HARP refinances may roughly double or more from their current amount but such forward-looking projections are inherently uncertain."
"We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach," said FHFA Acting Director Edward DeMarco. "Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets."
The CEOs for Fannie Mae or Freddie Mac both said the program would definitely reach more borrowers.
"By removing some of the impediments to refinance, lenders can more easily participate in the program allowing more eligible homeowners to take advantage of the low interest rates," Fannie chief Michael Williams said. "While HARP is only one refinancing program, it is a critical one for those homeowners who may be underwater on their mortgage and facing difficult decisions during these tough economic times."
"These changes mark another step on the road to recovery for the nation's housing market and underscore Freddie Mac's vital role in making affordable mortgage financing available to America's homeowners and future homebuyers," said Freddie CEO Charles "Ed" Haldeman.
In a conference call with investors Monday morning, JPMorgan Chase (JPM)
analysts said the representation and warranty waivers would come through two key areas. Lenders would not be responsible for the original loan file and would also not will be held to new appraisal mistakes because of the AVM.
"We believe this is the most material of all the things they are doing," analysts said.
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