Refinance Rules Relaxed

Fannie Mae and Freddie Mac recently updated their automated underwriting systems to handle the government’s new refinance program for underwater borrowers under the Home Affordable Refinance Program (HARP), known as HARP 2.

More than 12.5 million loans nationwide are seriously underwater, meaning they have a loan-to-value ratio of 125 percent or more, according to RealtyTrac. That represents 28 percent of all outstanding mortgages in the country. Underwater homeowners may be more likely to succumb to foreclosure if they are struggling to make their monthly mortgage payments, and may also be more likely to strategic default, walking away from their home and allowing it to be foreclosed even if they can still afford the mortgage payments.

More lenders are now offering loans under the expanded HARP 2, and qualified borrowers can shop around for loans. The basic requirements are minimal. You must have a source of income, be current on your payments and have a loan that was purchased by Fannie or Freddie before June 1, 2009. Your loan balance must be at least 80 percent of your home’s value but there is no upper limit.

The government estimates that 2 million borrowers could refinance into a new Fannie or Freddie loan under Harp 2, which is twice the number refinanced under the previous version. According to the U.S. Department of Housing and Urban Development (HUD), about 1 million HARP refinances had been completed as of November 2011 since the program started in April 2009. During that same time period, nearly 2.5 million completed foreclosures (REO) and 4.6 million foreclosure starts, according to RealtyTrac.

Harp 2 was announced in October and started in December, but until the automated systems were updated, banks could refinance only loans they already serviced and had to do it manually, so few got done. Fannie and Freddie updated their systems in mid-March.

The average 30-year, fixed-rate mortgage dropped below 4 percent in the end of March to 3.99 percent, while the rate on a 15-year, fixed-rate loan dropped to an average 3.23 percent, Freddie Mac reported. A year ago both loans averaged almost a percentage point higher.

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