More homeowners will now be eligible to refinance their homes and tap historic low interest rates due to significant changes to a critical government program by the Federal Housing Finance Agency (FHFA).
On Monday, the FHFA announced a number of changes to its Home Affordable Refinance Program (HARP) , the only active program that borrowers with underwater homes can use to refinance.
Crucially, the FHFA eliminated a restriction that did not allow refinancings if the loan-to-value (LTV) ratio was greater than 125%, effectively broadening the pool of eligible mortgages. The agency also eliminated a requirement for a new appraisal and certain risk-based fees.
"Building on the industry's experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the enterprise," Edward DeMarco, acting director of FHFA, said in a conference call. "Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets."
FHFA also agreed to waive certain representations and warranties that lenders commit to in making loans guaranteed by either of the government-sponsored enterprises, as well as extending the end date for HARP until Dec. 31, 2013 for loans sold before May 31, 2009.
To be eligible, 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. The loans must also be owned or guaranteed by Fannie or Freddie.
Already, Fannie Mae and Freddie Mac have helped to close to 9 million families refinance into a lower cost mortgage. Roughly 10% of those were through the HARP.
DeMarco did not provide estimates of how many borrowers the government anticipated the adjusted program would be able to help.
Part of the changes of the program is intended to incentivize those homeowners who are paying much more than the value of their homes to obtain short-term mortgage rates so that they can pay down the amount they own faster than under a traditional 30-year fixed mortgages.
Doing so, DeMarco said, would help strengthen the borrower's balance sheet and lower the credit risk of the GSEs that own the loan.