HARP is not the only program that will be available to borrowers that have a high LTV and have no other options to refinance their mortgage. Starting in October 2017, the Federal Housing Finance Agency will begin a similar streamlined refinance program for high LTV borrowers. This program will look like HARP® but have a few beneficial differences. Until the program becomes available, FHFHA encourages Fannie Mae and Freddie Mac to extend the HARP® deadline through the end of September 2017.
A Bridge Program
HARP now serves as a “bridge” program to lead the way to the new streamline refinance program FHFA plans to put in place next year. HARP® served to reduce the risk of default on loans that borrowers held that were underwater and the new program plans to do the same thing. HARP® was originally expected to go away at the end of this year, but as of now, it will continue for yet another year until the streamlined program is in place.
The New Guidelines
The guidelines for the new streamlined refinance program for high LTV borrowers mimics the standards of HARP®. So far, FHFA released that borrowers will need to meet the following qualifications:
- No late mortgage payments in the last six months
- No more than one late mortgage payments in the last 12 months
- Must be able to prove valid income
- There must be a benefit to refinance, such as a lower payment, lower interest rate, less risky mortgage program (fixed rather than an ARM) or a shorter term
As of right now, there will not be a minimum credit score required for the program and there is no limit to the debt ratio maximum or LTV.
What is Different with the Streamlined Refinance Program for High LTV Borrowers?
There is one vast difference for the new program – there are no limitations as to how many times you can use it. HARP® borrowers can only use the program one time, but borrowers can use the new program as many times as they see fit and as long as they qualify. The exception to the rule is borrowers that currently hold a HARP® loan – they cannot use the new high LTV streamlined refinance program. If a borrower refinances into a standard agency program after HARP®, they are then eligible for the new streamlined program for high LTV borrowers.
Reasons for the New Program
Many borrowers wonder why the mortgage industry would want to offer yet another program for high LTV borrowers? Isn’t it risky for lenders to stick their neck out for borrowers that have very little equity in their home? While there is some risk to providing new financing to borrowers without a lot of “skin in the game” it helps to lower the risk of default in the future. When borrowers are able to save money on their monthly mortgage payment, they can better afford it. This means that they are more likely to make their payments rather than walk away from their home. Since the program is strictly for borrowers that demonstrated financial responsibility by making a majority of their mortgage payments on time, it is easy to see how the program can benefit the lenders and the mortgage industry as a whole.
The executive vice president of Fannie Mae says that they plan to carry forward the streamlined approach that the Home Affordable Refinance Program® initiated. This means easier qualifying guidelines for borrowers that find themselves in a difficult situation with a decreased home value and nowhere to turn.
Fannie Mae and Freddie Mac will Offer Programs
Whether Fannie Mae or Freddie Mac owns your current loan, you could be eligible for the program. Each agency has their own requirements for qualification purposes; however, they align quite similarly along the way.
Fannie Mae Guidelines
- The loan must be a current Fannie Mae loan
- The LTV must exceed the current Fannie Mae guidelines
- There must be 12 monthly payments recorded already
- There must not be any late payments in the last six months and only one late in the last 12 months
- Mortgage insurance is only required if there is mortgage insurance on the loan right now
Freddie Mac Guidelines
- The loan must be a current Freddie Mac loan
- The LTV must exceed the current Freddie Mac guidelines
- There must be 12 monthly payments recorded already
- There must not be any late payments with the exception of one 30-day late payment in the last 12 months (the immediately preceding six months must be current though)
- Mortgage insurance is only necessary you pay it on your current mortgage
The new streamlined refinance program for high LTV borrowers is not set to be released until October 2017, but there will be more news coming out as the guidelines are perfected. As for now, borrowers can continue to use HARP® if their LTV exceeds the conforming guidelines.
