The federal government has changed the eligibility rules for the Home Affordable Refinance program (HARP), which is part of the Homeowner Affordability and Stability Plan. The changes to the HARP include lifting the maximum loan-to-value ratio to 125% from its current 105%. The change will make assistance easier to come by. Now loan modifications and refinancing will be available to more people whose homes are worth less than their mortgages, what is sometimes refereed to as upside down or underwater.
The HARP program is open to those homeowners whose mortgages are either owned or guaranteed by Freddie Mac or Fannie Mae, which are the mortgage finance giants that are now under federal government control. The program covers first mortgages only.
This home refinance program, which was launched earlier in 2009, has gotten off to a slow start so far to date. A big reason for the slow start to the program was because the maximum 105% loan-to-value ratio for mortgage refinancing was too low to include many homes that have fallen sharply in value.
The new rules to the program, which set a 125% maximum, now mean that an eligible homeowner with a $375,000 mortgage can now refinance if his or her house is now worth at least $300,000. So in this example, the house can be underwater by up to 75K, and this is a huge improvement in the Homeowner Affordability and Stability Plan. However, the borrower still needs to be able to afford making monthly payments on the new loan. Now one of the big challenges is that income requirements are an increasing problem to people trying to refinance as unemployment continues to increase and many workers who do have jobs are dealt pay cuts or are having their hours reduced.
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