Our government has stepped in to help struggling homeowners take advantage of today's low mortgage rates. Traditionally, mortgage lenders require the homeowner to qualify for a refinance with good credit, solid income and at least 5 percent equity. These rules have left a lot of homeowners out in the cold because home values have fallen leaving many homeowners upside down with their mortgage or, as some call it, underwater. In other words, they owe more money than their home is worth.

Fannie Mae and Freddie Mac, the nation's largest purchasers of home loans, were taken over by the government during the mortgage crisis. To help struggling homeowners, the government, through Fannie Mae and Freddie Mac, has created the Home Affordable Refinance Program (HARP). This program will allow homeowners to refinance into a lower rate even if they owe more money than their homes are worth. According to a recent Wall Street Journal article, HARP refinancings accounted for some 800,000 loans in 2012 which was double the number of HARP loans in 2011. Last year, HARP loans represented approximately 14 percent of the total loans refinanced through Freddie Mac and Fannie Mae.


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The rules regarding the maximum loan-to-value ratios vary between lenders but homeowners that want to refinance and owe more than their homes are worth may qualify for a HARP loan. To qualify, your loan must be owned or guaranteed by either Fannie Mae or Freddie Mac. To find out, you can check out your own mortgage by going to either http://www.freddiemac.com/avoidforeclosure/harp_eligibility.html or Fannie Mae's sight at https://knowyouroptions.com/loanlookup. Separately, homeowners who have an FHA loan may also refinance their loan with no appraisal required.

Additionally, your loan must have been purchased by Freddie Mac or Fannie Mae prior to May 31, 2009; your mortgage must be current and you cannot have a late payment on your mortgage for the past 12 months. Borrowers must also have good credit scores. If you have a second mortgage, you will have to get the approval from the holder of that note in order to replace your first mortgage with a new first mortgage. Some lenders who hold second mortgages may not agree to subordinate without a principal paydown of the second mortgage. HARP loans are available for owner occupied homes, vacation homes and non-owner occupied homes although the loan-to-value guidelines are different for each category.

An appraisal may not be necessary for a HARP loan; however, the final determination on whether or not one will be needed will be made by the Automated Underwriting findings. All mortgages today are approved via an automated underwriting process which involves the input of the borrowers' key financial data by the loan processors and underwriter. This data is extracted from the borrower's tax returns, bank statements, etc. and the findings are interpreted by the lender's underwriter.

To take advantage of a HARP refinance, homeowners may either go to a local lender who has experience with HARP loans or they may contact their current lender to find out if they are offering HARP refinances. In any case, be cautious and do not become the victim of a scam. Homeowners are constantly being bombarded with offers "too good to be true" via email, phone and U.S. Mail. Be sure to work with a reputable lender.

Local mortgage consultant Peter Boutell has been writing a weekly column for the Sentinel since 1995. Send questions to 'Lending a Hand,' 1535 Seabright Ave., Santa Cruz, CA 95062, fax them to 425-1044 or email them to peter@santacruzhomefinance.com. Archived columns are available at www.peterboutell.com.