HARP’s new guidelines leave giant mortgages out in the cold

Once again, there is excitement in the mortgage industry due to the new HARP 2.0 guidelines that were released on November 15, 2011. For the most part, the original HARP that was approved in 2009 as the Making Home Affordable plan or the Obama plan Refi has been a failure. Very few people were able to qualify for the program, and those who did qualify were only able to refinance at a lower rate and did not see their actual principal balance reduced.

Harp’s most recent guidelines will allow more people to qualify as the loan-to-value limit has been removed. The old guidelines left out millions of homeowners due to loan value restrictions of 105% -125%. There are no loan restrictions for valuing with the new HARP on 30-year fixed-term loans.

As before, the HARP program was not intended to help homeowners delay or avoid foreclosure. If you are behind on payments, you will not be eligible for a HARP refinance. Your home loan must be paid on time for the previous 6 months and at least 11 of the most recent 12 months to refinance with HARP. Also, your mortgage must have been sold to Fannie or Freddie before June 1, 2009 and if you refinanced under the old HARP you cannot use it again; only one HARP refinance is allowed per mortgage.

Another downside that remains with the newer HARP is that only homeowners with mortgages backed by Fannie Mae or Freddie Mac are eligible. Non-conforming loans, such as jumbo mortgages, as well as FHA and USDA mortgages, are not considered eligible for HARP.

The most important question remains. If a homeowner is upside-down on their mortgage, do they really want to refinance a loan underwater knowing that it can take 5-10 years to regain lost equity? For some homeowners with giant mortgages in California, Nevada, Arizona, and Florida, it is not uncommon to have several hundred thousand dollars upside down. Situations like this seem to have no viable solution and many of these homeowners are told to just leave.

In fact, these reverse jumbo mortgages have become the riskiest area for most lenders. Four of the nation’s top ten lenders are proactively reaching out to these borrowers to encourage them not to withdraw. These lenders are actually showing concern about these mortgages and this has opened a window of opportunity for giant mortgage payers who are upside down.

With the help of creative outside investors, giant mortgage borrowers who are open to creative problem solving are running away from their mortgages upside down and refinancing 80% of the loan at present value. The process is quite simple, but surprisingly most refinance lenders are unaware of the solution and reject the giant refinances and large fees they can afford.

Mortgage brokers who partner with the same outside investors and offer this solution to their clients are enjoying great success and a boost for their business.