Mortgages

Misconceptions May Keep Homeowners From Getting Low-rate Refi’s

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Millions of homeowners may be missing out on an opportunity to refinance their mortgages at market rates because they don’t know that the government-created Home Affordable Refinance Program (HARP) is available, or because they have misconceptions about how it works.

HARP is one of two programs created by the government to help homeowners stay in their homes. (Home Affordable Modification Program, or HAMP, is the other.) Under HARP, qualified homeowners can refinance their loans into fixed-rate mortgages at rates very close to current market rates. Unlike traditional loans that typically require 20 percent equity in order to avoid expensive mortgage insurance premiums –HARP loans may allow homeowners to refinance even if their homes are worth less than they owe. The maximum amount that can be borrowed is 125 percent of the home’s appraised value.

[Related: Making Home Affordable Programs Offer Help for Homeowners]

Some of the current misconceptions surrounding HARP:

1. Only your current lender or servicer can help you with a HARP loan. “Not true,” says Joe Kelly president of YouCanRefi.com. His company is helping homeowners across the country take advantage of HARP. “Unless you are paying mortgage insurance on your current loan,” says Kelly, “you can probably find another lender who would be more than happy to help you try to refinance under HARP.” Kelly points out that mortgage insurance is not homeowner’s insurance, but is a premium borrowers may be required to pay when they get a loan with a low down payment or less than 20 percent equity.

2. A home affordable refinance loan will hurt your credit. In fact, HARP loans are reported no differently than traditional mortgage refinance loans. Consumers who are worried about damage to their credit ratings may be confusing HARP with HAMP , the Home Affordable Modification Program that aims to reduce monthly payments.

3. You must have great credit to qualify. Also not true. In fact, there is no minimum credit score requirement, though some investors set a minimum score (a FICO score of 620 is the most common minimum, according to Kelly).

4. You can’t refinance if you have a second mortgage or home equity loan. It’s not necessarily a deal-breaker “as long as the holder of the second is willing to take second position behind the new loan, ” reports Kelly. He says most lenders are willing to do that because HARP improves the affordability of the mortgage. (When a homeowner defaults on a mortgage, the junior lienholder may get little or nothing at all.)

To potentially qualify for a one of these loans, you must be:

  • The owner of a one- to four-unit home with a loan owned or guaranteed by Fannie Mae or Freddie Mac. (See “How do I know if my loan is owned or has been guaranteed by Fannie Mae or Freddie Mac?“)
  • Current on mortgage payments (i.e. have not been more than 30 days late on your mortgage payment in the last 12 months; or, if you’ve had the loan for less than 12 months, you have never missed a payment).
  • Able to make your new mortgage payments, demonstrating a reasonable ability to pay.

The loans themselves are not made by the government, and they are not FHA loans. That means that standard loan underwriting standards will apply. Self-employed borrowers, for example, will need to document qualifying income. Home Affordable Refinance Program loans are available through any lender approved to do business through Fannie Mae or Freddie Mac.

Kelly says that some of his clients have complained that when they tried to contact their current lender or servicer about the program, they often couldn’t get through to find someone who could help them. He speculates that this may be due to understaffed servicers who are busy fielding calls from borrowers in need of loan modifications. Kelly also points out that there may not be a whole lot of incentive for a lender who is collecting payments at a higher interest rate to help borrowers lower it.

Notably, the government’s own website acknowledges the difficulty in finding a lender to process these loan applications with the following advice:

Please be patient yet persistent. Your lender could be handling a large volume of inquiries about the program and it may take some time before they are ready to process your application.

HARP is set to expire in June 2011, which is why Kelly is trying to get the word out that his firm is helping consumers qualify. “This is one of the best programs since sliced bread,” he says, ” but right now it’s set to expire. That means you really need to get the process started by April 2011.”

Update: The Home Affordable Refinance Program has been extended through June 2012.

Image by TheTruthAbout, via Flickr

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  • http://www.foodandsupplements-c.com Patricia Madison

    I am a 60 year old single woman with a $72,000 mortgage and next to no liquid assets. I have been trying to find clerical/administrative work for over a year and have not been able to because I do not have a degree (only some college) and have lifting restrictions of not more than 20 lbs on a regular basis nor can I stand for more than one hour at a time without a break. My medical doctors will not give me any signoff on disability at this time. I am able to work in an office environment as long as there is no lifting involved. I have a daughter who is my heir that has Multiple Sclerosis. I need a place to live and cannot afford to pass debt to her. Are there any viable suggestions you might have for my personal circumstances? 2012 will most likely bring higher utility payments than 2011 and that just might be the icebreaker until I can reach 62 to get any secure financial help that I need. My birth date is 6/1/51.

  • Mike Luttrell

    I am interested in a HARP loan. I am currently with BOA paying 5.375% APR. My home is worth $317,500, I owe $170,000. I have talked to BOA about a HARP loan. I need a 30-year loan $200,000 cash out. Can you get cash out with a HARP loan?

    And, after reading your column am I safe to assume that if I do a HARP loan it will not negatively impact my credit rating?

    • Gerri Detweiler

      Mike,

      My understanding is that HARP 2 loans only allow for minimal cash out to cover closing related expenses. From Fannie Mae:

      The authority given to Fannie Mae by FHFA for refinances of existing Fannie Mae loans with
      expanded LTVs and MI coverage flexibility is specifically limited by FHFA as follows: “The
      refinance will not have a cash-out component, except for closing costs and certain de minimis allowances to cover items such as association fees, property tax bills, insurance costs, and rounding adjustments.”

      A HARP loan will not negatively impact your credit rating.

  • Sandra Abernathy

    My husband and I talked with Citi about refinancing our condo at the beach with a HARP loan. I understand there are certain criteria involved and up until October of this year (it is now December) we had never been late. As a matter of fact, my husband had always paid a month ahead and with extra principal. Our current rate is 6%. In thinking we were a month ahead on our payments, my husband did not make the October payment before finding out we were, in fact, behind. Citi had already told us we could refi under the HARP program and to be watching for the package to arrive. When it never came, my husband called back only to find out that since he had missed October’s payment (he was unaware, like I said) we no longer qualified. I understand there are rules (I work for a bank) but in this situation, anyone could look back at our payment history and see that it had to be oversight on our part. As a matter of fact, we had been discussing contacting Citi a few months ago…knowing that we would not qualify if there was one late payment. So why would we purposely miss a payment? Like I said, someone could use some common sense in this situation and approve based on our payment history of 5 years (never late).

    • http://www.credit.com Gerri

      The HARP guidelines are set by the government and I don’t think there is leniency in terms of those basic criteria. Of course, I have to point out that just because Citi was sending you the package doesn’t mean they would have approved it anyway – we are hearing that it’s difficult to get HARP approval on second homes and rental properties, even for those that should quality.

      Unfortunately, my guess is you will have to make 12 more months of on-time payments and apply then. Unless one of our readers can come up with a work around!

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