New refi program has a few caveats
WASHINGTON — The most ambitious federal mortgage program to date aimed at millions of underwater homeowners is poised to take off in the coming two weeks, yet some key issues could hinder borrowers' participation. One of them involves something most owners know nothing about: Who was your mortgage insurer on your underwater loan?
The HARP 2.0 — the second version of the Home Affordable Refinance Program — will only hit full stride around the middle of March, when Fannie Mae and Freddie Mac finish tweaking their automated underwriting systems to accept applications, and lenders and mortgage insurance companies start handling requests.
The revisions are crucial for owners who have outstanding mortgage balances in excess of 125 percent of the current resale values of their homes. Under HARP 2.0, there is no upper limit on permissible loan-to-value ratios, or LTVs.
The latest HARP also comes with streamlined underwriting — no requirement for physical appraisals in many cases, speedy processing and elimination of some of the fees imposed by Fannie Mae and Freddie Mac. Among the key rules:
• Only loans owned or guaranteed by Fannie Mae and Freddie Mac are eligible. Underwater borrowers who have FHA, VA or other types of mortgages are not.
• Your mortgage must have been purchased or securitized by either company no later than May 31, 2009, and must have an LTV ratio in excess of 80 percent.
• You must be current on your loan with no 30-day late payments during the six months preceding application and no more than one late payment in the last 12 months.
If you think you qualify right now, you can ask your mortgage servicer how to proceed.
But some lenders may not want to proceed with your application solely because of the name of the mortgage insurer on your current loan. If it is United Guaranty Corp., they may set your application aside because that firm has not agreed to adhere fully to the streamlined procedures other insurers accepted as part of the deal.
United Guaranty has refused to waive its rights to force lenders to repurchase what it considers badly underwritten loans, and is requiring additional underwriting in some cases. The net effect of United Guaranty's policy, say lenders and federal officials, is to disrupt the intended fast and efficient processing of HARP refi applications — potentially denying lower interest rates to as many as 10 to 15 percent of underwater borrowers who might otherwise qualify.
In an email to me, United Guaranty said it "fully supports the Obama administration's efforts" in revising HARP, and that only a "minority" of its insured mortgages should be affected by its policy disagreement with the rest of the industry.
Kenneth R. Harney can be reached at firstname.lastname@example.org.