HARP 2.0 Borrower Eligibity

The Obama administration’s latest effort to revive the housing sector is currently reloading. The updated Home Affordable Refinance Program, referred to as HARP 2.0, will launch as soon as automated underwriting mortgage software is changed to reflect improvements to the program.

Those changes are expected to be completed by mid March, according to Andrew Wilson, senior manager of corporate communication for Fannie Mae, which is the government-sponsored agency created to sustain an affordable housing market.

Meanwhile, most homeowners with underwater mortgages who qualify under the new guidelines will have to wait to try and take advantage of the program. 

The Federal Housing Finance Agency and the Department of the Treasury introduced HARP in early 2009 as part of the Obama Administration’s Making Home Affordable program. HARP provides borrowers who may not be able to obtain traditional financing the ability to refinance despite having negative equity, also referred to as "being underwater".

The city of Chicago continues to sink deeper underwater than some of the cities hardest hit by the housing downturn such as Detroit and Miami. According to the S&P/Case Schiller Home Price Index, Chicago home values have dropped nearly 5 percent over the last year.

According to data released by Corelogic in November, nearly 22 percent of homeowners in Illinois have negative equity in their homes, very close to the national average.

Harp 2.0 makes a greater attempt to address the issue.

The most notable guideline change is the removal of loan-to-value limits. Previously, HARP limited a borrower’s loan to 125 percent of the home’s appraised value. Although the limit has been lifted entirely, lenders can still impose their own guidelines.

Lender participation will be critical to the success of HARP 2.0. Participation will “vary by lender,” says Wilson.

One of the reasons for the program changes was to “remove some of the friction from lenders” to make it easier for them to do the loans, Wilson added.

In order to lure reluctant banks into the program, the government implemented a key strategy. If loans go bad, the banks are off the hook. As long as the banks follow the program guidelines, the government will pay off the loan in the case of a default.

Since the announcement of the expanded guidelines in November, homeowners across the country as well as the Chicago area have been eager to participate.

“There are calls coming in,” said Joel Gothelf, president of Granite Mortgage in Skokie. “There just aren’t many lenders participating,” he added. “I only know of one lender right now.”

A very small number of lenders who are currently underwriting HARP 2.0 loans are doing so manually – without using Fannie Mae’s desktop underwriting software update.

Larger lenders that originate higher volumes of loans typically rely on Fannie Mae’s instant approval software are waiting for the update in mid-March.