Refinancing an Upside Down Mortgage

Refinancing an Upside Down Mortgage

March 12, 2010

What do you do when your borrower owes more than their house is worth? Can you refinance them?

Originally known as Making Home Affordable, the Home Affordable Refinance Program (HARP) is designed to help homeowners refinance their mortgage who may owe more on their mortgage than the home is worth.

Good news for you and your borrowers, the Federal Housing Finance Agency has extended the government’s Home Affordable Refinance Program by 12 months. HARP’s new end date is June 30, 2011.

There are 4 basic HARP criteria every borrower must meet:

The existing home loan must be guaranteed by Fannie Mae or Freddie Mac.
Your home must be a 1- to 4-unit property
You must have a perfect mortgage payment history going back 12 months. No 30-day lates allowed.
Your first mortgage balance must be 125% or less of your home’s market value

To check for the first requirement, both Fannie Mae and Freddie Mac have a website to verify if your borrower has a qualifiying mortgage. Fannie’s website is http://www.fanniemae.com/loanlookup; Freddie’s is http://freddiemac.com/mymortgage. If you don’t locate the loan on either website, your borrowers mortgage is backed by a third-party and is not HARP-eligible.

For borrowers that meet HARP’s criteria, there are some underwriting details which you should know.

If the original mortgage did not require mortgage insurance, the HARP mortgage will not require it, either – regardless of the new loan-to-value.

Additionally, all HARP refinances require income verification. It doesn’t matter if the original mortgage was a stated income or a no income verification loan. Your borrower should expect to produce 1040s and W-2s for their HARP refinance and asset statements, too.

Finally, second (and third) mortgages may not be “rolled in” to a new first mortgage loan balance. Suboridinate lien holders must agree to remain in a junior lien position, regardless of combined loan-to-value.

Southwest Funding offers training and support on HARP to all of its retail mortgage branch offices, as well as many other unique mortgage products. In addition, the company is able to both bank and broker these loans. If you would like more information on HARP or what Southwest Funding can do to help your business, contact us today.

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