The Obama administration announced Monday that it will overhaul the federal program aimed at helping people avoid foreclosure. The changes will make it easier for more people to qualify for the Home Affordable Refinance Program (HARP), and scrap barriers that lenders complained made it financially difficult for them to participate.
“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” Edward J. DeMarco, acting director of the Federal Housing Finance Agency, said in a prepared statement. “(W)e have identified several changes that will make the program accessible to more borrowers.”
Before the overhaul, homeowners who owed more than 125 percent of their home’s current value were barred from participating in HARP. The new version of the program scraps that cap. To participate, homeowners must have loans that are owned or insured by Fannie Mae or Freddie Mac, and they must owe at least 80 percent of their home’s value.
The problems with HARP weren’t just limited to homeowners. Lenders have complained since the program started over two years ago that the government’s requirement that they pay fees for each refinanced loan, and that they make certain legal guarantees to Fannie and Freddie about the quality of the new loans, prevented them participating.
The new rules get rid of those fees and warranties, and scrap the requirement that each modified loan requires a new appraisal of the home. The changes also get rid of a penalty that charged lenders additional fees if they refinanced homeowners into loans with payoff periods shorter than 30 years.
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“An important element of these changes is the encouragement, through elimination of certain risk-based fees, for borrowers to utilize HARP to refinance into shorter-term mortgages,” according to the housing finance agency’s press release. “Borrowers who owe more on their house than the house is worth will be able to reduce the balance owed much faster if they take advantage of today’s low interest rates by shortening the term of their mortgage.”
Lenders welcomed the reform.
“Not only will these changes allow more borrowers to qualify, but they will streamline the process and reduce the cost to borrowers and should lessen risk for Fannie Mae and Freddie Mac,” according to a statement by David H. Stevens, president of the Mortgage Bankers Association.
The changes won’t take effect immediately. Final rules won’t be given to lenders until Nov. 15, the housing agency said, and then lenders will need time to incorporate them.
[Related article: How to Fix the Foreclosure Crisis: A Real Bailout]
Image: Ronald Eliassen Hole, via Flickr.com