Am I eligible for a HARP refinance?

Do assets and cash reserves need to be included on my application?

Assets and cash reserves will generally need to be verified for underwriting purposes. For a DU Refi Plus transaction, lenders are relieved of the underwriting of representations and warranties only if the data entered is wholly accurate and complete, and complies with all instructions detailed in Fannie Mae’s relevant guidelines. For a manual Refi Plus transaction, assets and cash reserves do not need to be verified unless the new monthly loan payment is an increase of 20% or more over the previous payment. In that case, the borrower must be re-qualified for the new loan. If you are required to bring funds to closing, the assets to close must be verified as part of the re-qualification.

Can a co-borrower switch mortgages?

Yes. If one of the original borrowers on the existing loan is removed, a new borrower may be added to the refinanced loan. However, under a DU transaction, the lender will be unable to represent and warrant that the names on the existing loan match the names on the loan application. Therefore, the lender will need to determine the circumstances concerning the borrower who was removed from the loan:

  • If the borrower in question is deceased, the lender is responsible for presenting evidence of the death, but is not obligated to document that the borrower was making loan payments from their own funds over the most recent 12-month period.
  • If the borrower is not deceased, documentation of the borrower’s payment history is required, so that it can be shown that they were making loan payments using their own source of funds over the last 12 months.

Note concerning non-occupant co-borrowers: If the co-borrower being added to the loan is not occupying the property as primary residence, that borrower’s income and debts will not be included when calculating the total expense ratio. Therefore, only the income and debts of the occupant borrower(s) is allowed to be used to determine this ratio.

Are there employment / income requirements?

The lender must verify your employment for a DU Refi Plus transaction, which will require at least a verbal VOE (verification of employment). All sources of any non-employment income that you may have will also need to be documented. Lenders are relieved of the underwriting of representations and warranties only if the data entered is wholly accurate and complete, and complies with all instructions detailed in Fannie Mae’s relevant guidelines. For a manual Refi Plus loan, the lender needs to verify your employment and any non-employment income sources if your increase in principal and interest payment is less than 20%. A verbal VOE will suffice to determine that you are currently employed. Borrower benefit provisions and your payment history on the existing mortgage will determine your ability to repay the new loan. If the payment increase is higher than 20%, you will need to be re-qualified for the Refi Plus loan, a process that will require that all sources and amounts of income, as well as any assets to close, be verified.

How does my credit history affect my approval?

For a DU Refi Plus loan, your credit risk will be determined through a full review of your credit history. However, Fannie Mae’s required minimum credit score does not apply to this loan. For a Refi Plus loan (which is manually underwritten), the assessment of your credit depends on how much your monthly payment on principal and interest will increase. If the increase is less than 20%, the lender is only required to check that a borrower has not been delinquent on the existing mortgage over the last six months, nor has had more than one 30-day delinquency in the six months prior. If the increase is greater than 20%, the borrower must be re-qualified for the mortgage using a minimum credit score, maximum debt-to-income ratio and documentation of income and assets.

If I refinanced on or after June 1, 2009 am I eligible for HARP ?

No. If the existing loan was not acquired by Fannie Mae before June 1, 2009, it is ineligible for HARP. In March 2011, the initial cutoff date of March 1, 2009, was extended by three months to June 1, 2009, and this revised deadline is still in effect.

Can I get cash back on a HARP Refinance?

Fannie Mae policy does not allow borrowers to receive cash back through HARP. However, to simplify calculations when generating the new loan, any amount less than $250 at closing can be returned to the borrower. Any amount higher than this threshold must be applied to payment on the new loan in order to reduce the principal balance. The limit on this payment should be either $2,000 or 2% of the principal balance, whichever is lower. A higher amount would signify a cash-back refinance and thus would not be eligible for HARP.

If I am currently in a modification program can I apply for HARP?

In general, if you meet the requirements for a modification program such as HAMP, you will not be eligible for HARP. A modification program is intended for homeowners who cannot meet their current mortgage payments and are at risk of foreclosure. HARP, on the other hand, is intended for homeowners who have not been able to refinance at lower interest rates because of their homes’ falling values. However, some struggling borrowers may have entered HAMP on a trial basis in anticipation of greater hardship or default. If their circumstances have since improved and the HAMP trial modification was resolved, and they meet the current eligibility requirements, they may be able to refinance through HARP.

What is the maximum LTV, CLTV, HCLTV, or TLTV? And what do all these mean?

A loan-to-value ratio (LTV) is applied to determine appropriate eligibility for finance transactions. While LTV refers to the first mortgage on the home, a combined loan-to-value ratio (CLTV) also includes any subordinate financing on top of the first lien. The terms “home equity combined loan-to-value” (HCLTV) and “total loan-to-value” (TLV) are also used interchangeably with CLTV. For example: John has a home worth $100,000 and has a first mortgage for $90,000. He also has a home equity loan on which he owes $25,000. Therefore, John’s combined loan-to-value ratio (CLTV) is 115%. If referring to the LTV on his first mortgage, it would be 90%, but in referencing his CLTV (aka HCLTV/TLTV), it is 115%. While there is no maximum limit on CLTVs for existing loans, no subordinate financing on the new HARP  loan is allowed, and the existing liens must be resubordinated in order for a Refi Plus transaction (DU or manual) to occur.

What documentation is required to document income?

While there is no specific requirement for documenting non-employment income, the lender will normally request a common document, such as a bank statement or a check stub, that identifies the source of the income. (The purpose is to confirm only the income’s source, not the amount of the income or its continuity.) Other sources, including capital gains, interest and dividends, and royalties, may come with separate documentation requirements.

My home is currently listed for sale. Can I still apply for HARP?

Yes. Although Fannie Mae policy prohibits the refinancing of homes that are currently listed on the market, this policy can be waived for Refi Plus transactions (manual or DU).

How are joint bank accounts handled when removing a borrower?

When a borrower is to be removed from the new loan through a refinance transaction, the borrower who remains on the loan is required to show evidence that he or she has made payments over the last 12 months from his or her own funds. Therefore, accounts that are jointly held by the removed and the remaining borrower cannot be used to fulfill this requirement. The removal of a borrower is supposed to give the remaining borrower the ability to refinance without the removed party’s continued contribution towards the payment of the loan.

When does the HARP Mortgage Program end?

Lenders must deliver Refi Plus and DU Refi Plus loans to Fannie Mae by December 31, 2013. The program is effective for whole loans until April 30, 2014, and for loans in mortgage-backed security (MBS) pools until April 1, 2014.

What if I have a second mortgage?

In some cases, borrowers may have taken out second liens on their homes. For a HARP refinance that includes a Refi Plus transaction, any second mortgage must be re-subordinated so that the new first mortgage continues to have first-lien priority. Refer to Fannie Mae’s guidelines to ensure that your subordinate financing is acceptable under Refi Plus transactions.

If the new payment amount is 20% greater, what are the additional requirements?

You must be re-qualified for the new loan under the following guidelines:

  • a maximum debt-to-income ratio of 45%
  • a minimum representative credit score of 620
  • all sources and amounts of income verified
  • if required to present funds at closing, have assets to close verified

Note: these guidelines are provided for manual underwriting Refi Plus transactions only, DU Refi Plus transactions will have specific documentation requirements included in the approval results from the automated underwriting system.

How do lenders determine what is a “reasonable ability to repay”?

Several factors are taken into account when the lender determines the borrower’s eligibility for Refi Plus (manual underwriting). When the new loan payment amount exceeds the borrower’s stated income, or results in an especially high debt-to-income ratio (DTI), the lender will have to figure out if the borrower does in fact demonstrate a reasonable ability to repay the loan. First and foremost, they take into account borrower benefit provisions and past payment history on the existing mortgage. As part of this process, the lender will consider if the borrower would be better suited for a loss-mitigation option such as a loan modification or a deed in lieu of foreclosure. For some borrowers, a modification through HAMP may be more appropriate than a refinance, particularly if the borrower is at imminent risk of default. Remember that, for a Refi Plus (manual) transaction, your DTI and amount of income do not need to be verified if your new loan payment amount is not increasing by more than 20%. However, if you have a DTI ratio that is unrealistically high, the lender will be prompted to review your circumstances to decide if a refinance is a sustainable option for you and for the lender. Also, although Fannie Mae does not enforce a DTI limit, it does monitor the delivery of loans to develop a greater sense of the tendencies of the average borrower and the lenders’ definitions of what constitutes a reasonable ability to repay the loan.

Is there still a 620 credit score requirement?

This requirement is being waived for DU Refi Plus loans because Fannie Mae already owns the risk on the loan and the DU risk assessment automatically determines the borrower’s ability to repay. At this time, the minimum score of 620 is only required for loans undergoing manual Refi Plus transactions that will result in an increase in payment that is greater than 20%.

Do I need to disclose my income?

Yes, you must report your income to Fannie Mae. Even if your Refi Plus loan is not bound by a maximum debt-to-income ratio, you will need to provide your income amount at the time the loan is delivered.

What are the credit requirements for the HARP program?

No minimum credit score is required for a Refi Plus transaction resulting in an increase in monthly principal and interest that is less than 20%. However, a credit score is still necessary in order to determine the LLPAs that will be applied to the new loan. If, at the time of delivery of the new loan, a credit score has not been furnished, then the LLPA for the loan will be the highest one listed on the Refi Plus Pricing Matrix according to the applicable loan-to-value ratio. There is a minimum credit score requirement if the existing loan needs to be re-qualified under Refi Plus — that is, if the principal and interest are set to increase by more than 20%. A credit score of 620 is necessary for re-qualification.

Do all existing borrowers need to be on the new loan?

Existing borrowers may be removed from the new loan on a Refi Plus transaction, for any reason, as long as the following conditions are met:

  • the lender can demonstrate that the borrowers who remain on the loan have made loan payments over the past 12 months from their own funds; and
  • the borrower to be removed from the loan is also removed from the deed.

In cases of a borrower who is deceased, proper documentation concerning the borrower’s death must be included in the Refi Plus file. Even in these cases, the lender is still required to demonstrate that the remaining borrower(s) have continued making payments. For a DU Refi Plus transaction, existing borrowers may be removed from the new loan under the same conditions as above. However, in the case of removing deceased borrowers, there is no need to prove that the remaining borrower(s) have been making loan payments from their own funds.

What happens if one of the borrowers on the original loan has passed away?

For a refinance transaction, the name of the deceased borrower may be removed from the new loan. However, the name is not required to be removed from the property title. Fannie Mae will go by customary practice for guidance on how to proceed with these situations.

Can a borrower buy out another borrower with loan proceeds?

All borrowers are prohibited from “buying out” the interest of any borrower who is being removed by a Refi Plus or DU Refi Plus transaction, which would thus augment the unpaid principal balance. No increase to the unpaid principal is allowed, unless it is to finance the closing costs.

What borrower benefits are required to be met?

In order to satisfy the borrower benefit requirement for the new mortgage loan, at least one of the four conditions below must be fulfilled:

  • lowering of the interest rate
  • lowering of the monthly payment of principal and interest
  • reducing the period of amortization, or
  • moving the loan to a more stable product.

For the new loan to be considered more stable, it cannot have a longer amortization period than the existing loan, nor can it be an adjustable-rate mortgage as long as the existing loan is a fixed-rate mortgage. To ensure stability for the long term, Fannie Mae encourages refinanced mortgages to have fixed rates whenever possible.

When can I apply for the new HARP program?

Some lenders may be able to accommodate mortgage applications under some of the enhancements by December 1 while it could take other lenders additional time to incorporate the expanded program into their systems. In addition, some of the enhancements such as delivery of loans with LTV greater than 125 should be operational during the first quarter of 2012.

What if my mortgage is not with Fannie Mae or Freddie Mac?

If your loan is not held by either Fannie Mae or Freddie Mac there may be other programs still available to you.  If you would like to speak with a counselor about available programs, call the Homeowner’s HOPE Hotline 1-888-995-HOPE (4673). The Homeowner’s HOPE Hotline offers free HUD-certified counseling services and is available 24/7 in English and Spanish. Other languages are available by appointment.