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December 19th, 2011

No. 10: ‘Why is it so hard to be approved for a HARP refinance?’



rejectedNumber 10 on our Top 10 most popular articles of 2011 is the refinance article, “Why is it so hard to be approved for a HARP refinance?

Publish date: March 30, 2011
Written by: Gina Pogol


The government’s Home Affordable Refinance Program (HARP) was begun to help homeowners with little or negative equity refinance to current mortgage rates. As applicants for HARP refinances can attest, a program that looks straightforward on paper is much less so in reality. What’s so difficult about being approved for a HARP refinance?

On the face of it, there shouldn’t be much problem getting these HARP refinances approved. After all, by allowing a reduction in borrowers’ mortgage payments, Fannie and Freddie lower the risk of default and foreclosure, increasing the health of their mortgage portfolios, right?

Unfortunately, it hasn’t quite worked that way. Here are some of the major reasons why a troubled homeowner may not be able to turn to a HARP refinance:

1. Mortgage lender overlays. Many lenders have chosen to impose overlays on HARP refinances. (Overlays are increases in the minimum requirements to obtain a loan, such as an increase in the minimum credit score or a decrease in the maximum LTV ratios. Lenders do this in hopes that the loans they do make will be less likely to fail).

These private overlays are more stringent than the requirements dictated by the program.

2. Second mortgage roadblocks. Homeowners who took out home equity loans after purchasing their property may have mortgages that do not comply with Fannie Mae or Freddie Mac guidelines, and it’s doubtful they were informed of this. In fairness to home equity (second lien) lenders, there had never before been any reason to expect this change to cause problems for borrowers.

3. Unintended consequences from loan mod attempts. Those who apply for a loan modification under HAMP, make trial payments, and then are denied for a permanent loan modification may end up ineligible for HARP as well.

4. Refinance pricing. Refinancing through HARP, unlike getting a loan modification through HAMP, involves real costs to the borrower–with loan-level pricing adjustments of up to 2 percent in addition to the standard refinance costs such as origination charges, underwriting fees, appraisal expenses, and title and escrow. These expenses mean that some eligible homeowners simply won’t find it cost-effective to refinance.

5. Mortgage insurance considerations. Finally, if your current mortgage includes mortgage insurance, you will not be able to shop around for the best deal: You must use your current mortgage lender and take whatever pricing it offers. If your lender imposes overlays that make you ineligible for refinancing, you are out of luck because you can’t go to another lender.

Refinance roadblocks like these were precisely the reason why the HARP program was expanded to make refinances simpler and more cost effective for more homeowners.

Also, be sure to read the latest issue of our Market Trends newsletter: “Mortgage rates slip to new record lows.”

One Response to “No. 10: ‘Why is it so hard to be approved for a HARP refinance?’”

  1. Randall Brower Says: January 30th, 2012 at 10:27 am

    You may want to provide an update to this for HARP 2.0 as it will allow you to switch from one lender to another even if you currently pay MI.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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