Since the introduction of the Housing Affordable Refinance Program (HARP), many borrowers were left out of the ambit of this program and many were not allowed to opt for this program. In order to bring more borrowers under the coverage of this program, HARP 2.0 was released in October 2011. HARP 2.0 brought about significant changes in the original program in the form of relaxation in the loan to value ratio (LTV) and made the qualification criteria easy for the borrowers. However, as per the HARP 2.0 guidelines, mortgage loans that are not owned by the Freddie Mac and Fannie Mae, do not qualify for this refinance program. Again, in case a borrower fulfills the guidelines set forth by the Freddie Mac and Fannie Mae, he will not be approved to obtain a HARP. In order to make HARP 2.0 more efficient, following things can be done -
Bringing more borrowers in the HARP net
With HARP 2.0, it is sometimes seen that though a particular borrower fulfills the general HARP eligibility requirements, some lenders are still not approving their loans. Even sometimes, they are charging higher rate of interest and fees. In the HARP 2.0, though the 125% LTV requirement has been abolished, but still some lenders have set their own stricter loan eligibility requirements and asking for lower DTI ratio and higher credit score.
The HARP was limited to the original lenders only. In fact, the big lenders have a major share in HARP business. Due to this lack of competition, some lenders are charging higher rate of interest. This has led to many home borrowers being kept outside the ambit of the HARP. However, the introduction of the automated underwriting systems has resulted into increased competition in the HARP market as some mid-sized lenders have started entering this market. It is however also the responsibility of the borrowers to shop around so as to obtain the best mortgage deal.
Widening the ambit of HARP to more loan programs
In case the loans owned by the underwater borrowers are not guaranteed by Freddie Mac or Fannie Mae, then those loans are not allowed for HARP. If the loan is owned by private lenders or banks, then those loans are not eligible for HARP. To address this problem, President Barack Obama had announced a plan to broaden the reach of this program by allowing loans not owned by Freddie Mac or Fannie Mae to enter into its orbit.
If you are underwater, you need to be extra cautious and you can follow these tips-
- If the loan that you have taken out is owned by Freddie Mac or Fannie Mae, then you should check with HARP 2.0 program. In case the loan is a FHA loan, then you need to look for FHA streamline finance.
- If you are on a HARP, you need to keep it in mind that timely payment is a must. Make sure that you don't default in making payments.
- If you are finding it tough to continue with making payments, you can look for a loan modification program.
Related reading: http://mortgageporter.com/2012/09/how-loan-to-values-impact-pricing-for-refinances-including-harp-2-0.html