Homeowners can start applying for the government's revamped refinancing program on Thursday. But much like the first time around, experts say many borrowers will see it as too little too late.
The program is intended to help borrowers who owe significantly more on their home than what it's currently worth. It expands on the original Home Affordable Refinance Program, or HARP, which was created to help borrowers who owe up to 105% of their home's market value to refinance their mortgage, and was later expanded to those who owed up to 125%. This newest incarnation, dubbed HARP 2.0, removes the 125% cap, allowing borrowers who are deeply underwater to get a new mortgage at a lower interest rate and with more affordable monthly payments. To qualify, borrowers must have either a Freddie Mac or Fannie Mae-backed mortgage.
While experts say the new HARP will help more borrowers -- roughly 11 million homeowners are underwater, according to data and analytics firm CoreLogic -- they point out its limitations.
For starters, the whole process could take months. Lenders who underwrite mortgages manually can start processing refinancing applications this month, say spokespeople from Fannie Mae and Freddie Mac. But those who depend on an automated software system to underwrite mortgages must wait until updates are made, says Brad German, a Freddie Mac Spokesman. (Many lenders rely on the automated system.) Those lenders won't be able to start processing applications and delivering loans until at least early February for Freddie Mac-backed mortgages and until March for Fannie Mae-backed mortgages.
That's not the worst of it, say experts: Some borrowers might not be able to qualify at all. The program requires that borrowers have missed no more than one payment during the past year and none during the past six months, says Keith Gumbinger, vice president at HSH Associates, a mortgage-data firm. If they don't meet this criteria, they'll have to wait until they do in order to qualify. Also, borrowers who've already refinanced through HARP are ineligible. "It's a nice little step, but [it's] not really going to get the housing market restarted," says Ira Rheingold, executive director of the National Association of Consumer Advocates, whose members include attorneys that represent distressed homeowners.
What's more, the program is entirely voluntary. Lenders are not required to refinance mortgages for underwater homeowners. (The government doesn't provide incentives for lenders to participate in HARP.) Many homeowners who qualified for the existing HARP program were turned down because lenders were unwilling to take on that risk, says Gumbinger. Lender resistance may also derail some borrowers' attempts to refinance under HARP 2.0. It's up to each lender to determine whether they'll participate in the program. (Freddie Mac lists participating lenders on its web site.)
That said, experts say some aspects of refinancing will get easier. For example, borrowers who apply to the same lender to whom they make their monthly payments won't have their credit scores checked, they point out, and won't be required to provide documentation proving their income. The lender will simply call the borrower's employer to confirm job status. That could come as relief for borrowers who've recently experienced a pay cut or a ding to their credit score.
Is it worth it? Gumbinger points out that qualifying homeowners stand to save thousands of dollars over the life of the loan by refinancing to a lower rate. However, the program does not reduce mortgage principal, so even after successfully refinancing, borrowers will still remain underwater, he says.