The popular and ever-evolving HARP refinancing effort backed by government-subsidized Fannie Mae and Freddie Mac is about to make it easier for some “underwater” borrowers by offering up to $2,000 to cover closing costs or other fees.
Fannie and Freddie will begin allowing mortgage lenders to contribute up to $2,000 for borrowers seeking to refinance their home mortgage under the Home Affordable Refinancing Program, the government effort overhauled last year to allow homeowners deep into negative equity to take advantage of historically low interest rates. HARP currently represents about 25 percent of all refinancing applications.
Lenders are also allowed to include within that $2,000 limit “cash or cash-like incentives,” including a gift card of up to $500.
Only mortgages held by Fannie or Freddie qualify for this assistance, although President Obama is pushing to expand the campaign to a wider swath of underwater borrowers who owe much more on their mortgages than the value of their homes.
Lenders are able to provide rebates because they are seeing better gain-on-sale margins, or the amount banks realize after selling loans to the secondary market. Currently low interest rates are structured so that it is possible for lenders to offer generous incentives to borrowers, depending on how mortgage-backed securities are trading.
Last week’s announcement, “simply provides a clarification to lenders on benefits that can be passed back to borrowers on a HARP refinance,” Meg Burns, a senior policy director for the Federal Housing Finance Agency, which regulates Fannie and Freddie, told The Wall Street Journal .
Fannie and Freddie hadn’t previously given specific guidance for lenders on incentives allowed under HARP partly because the issue had not been raised by lenders.
About 800,000 of HARP refinances occurred between January and October last year, double the volume of 2011, after Fannie and Freddie removed debt-to-value limits for underwater borrowers, significantly widening eligibility.
According to Fannie Mae, HARP may be an option if:
- You are “current” on your mortgage payments (“current” means you have not been 30 days or more late in the last six months and you were not more than one time 30 days late in the six-month period prior to the last six months)
- Your home value has decreased
- You have limited equity or your first mortgage exceeds the current market value of the home (i.e., your loan-to-value ratio must be > 80% to be eligible)
- Your loan is owned or guaranteed by Fannie Mae or Freddie Mac. Check the Fannie Mae Loan Lookup tool.
- Your loan was acquired by Fannie Mae or Freddie Mac on or before May 31, 2009 (this date can be found in the Loan Lookup results)