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FM Commentary

HARP Phase II: More Help for Homeowners

John S. ForlinesThe New York Times editorial “On the Road to Relief” that ran on October 25 stated, “Until now, Fannie and Freddie, which were taken over by the government early in the financial crisis, have balked at refinancings for any underwater borrowers...” This statement is false. Interest in refinancing has soared in the last couple of years as mortgage interest rates dropped to historic lows. Almost 9 million homeowners have refinanced since 2009, through Fannie Mae and Freddie Mac. Refinancing allowed these borrowers to take advantage of low rates and more stable, sustainable loans.

More than 890,000 borrowers have refinanced through the Home Affordable Refinance Program (HARP), the only refinance program available to “underwater” borrowers who owe more on their loans than the value of their home. While this is a significant number, we all hoped that HARP would help even more borrowers when unveiled by the Obama Administration in 2009.

This week, the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac announced significant changes to HARP that could make refinancing realistic for far more borrowers. The changes will make refinancing easier and potentially less expensive for homeowners in good standing while encouraging lenders to participate in the voluntary program.

Fannie Mae welcomes this opportunity to help more borrowers. Homeowners who refinance into more affordable and sustainable loans – typically with lower mortgage or shorter term payments – strengthen their financial position and may increase their spending power.

To be eligible for HARP, the borrower’s mortgage must have been sold to Fannie Mae or Freddie Mac before June 2009. The borrower’s loan-to-value ratio must be greater than 80 percent. Borrowers must be current on their mortgage payments with no late payments in the past six months and no more than one late payment in the past 12 months. Other refinancing products are available for borrowers with good credit and a loan-to-value ratio that is less than 80 percent.

While HARP previously limited eligibility to borrowers whose mortgage exceeded their home value by up to 25 percent, the new HARP guidelines remove that ceiling when the refinancing is into a new fixed-rate mortgage.

Other changes to HARP include:

  • Eliminating certain risk-based fees for borrowers who refinance into shorter-term loans and lowering fees for other borrowers.
  • Eliminating the need for a new property appraisal when Fannie Mae or Freddie Mac provides a reliable automated valuation of the property.
  • Extending HARP through December 2013.
  • Reducing rep and warrant risk for lenders.

Fannie Mae will continue to work with FHFA, Freddie Mac, lenders, and mortgage insurers to help borrowers who want to take advantage of low interest rates.

More information about HARP is available at the FHFA website.

John S. Forlines
Vice President – Chief Risk Officer for Single-Family Product

October 27, 2011

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