Tomorrow the government will announce changes to the Home Affordable Refinance Program (or HARP) that are designed to help eligible borrowers refinance their mortgages, when their mortgage balance is more than their home is worth. Homeowners in this situation are considered “underwater” on their mortgages.

The program only applies to conventional loans (not FHA or VA loans) that were closed on or before May 31, 2009.

The major proposed change is to remove the current ceiling on how much “underwater” the borrower can be. Currently, the limit for a refinance is 125% of the home’s value, or 25% more than the home’s value.

Another proposed change is to eliminate certain fees if the borrower refinances into a shorter-term mortgage. If you have a 30-year loan, and refinance to a 20-year loan, you will avoid some fees. However, you might also pay a higher monthly amount because your loan would have to be paid off in a shorter period of time. This depends on the new interest rate and the years left on your current loan.

A third proposed change is to eliminate the need for a formal appraisal if a reliable automated value is available. This would save the appraisal fee of $300 or more.

To be eligible, a borrower must be current on his mortgage payments, cannot have missed any mortgage payments in the past six months and cannot have had more than one missed payment in the past 12 months. Additionally, the borrower cannot have refinanced through this program previously.

Also, the property must be the borrower’s primary residence and the loan must be owned by Fannie Mae or Freddie Mac.

Other conditions and restrictions are proposed. This will help homeowners who have been keeping up their payments, have sufficient income, but have not been able to refinance because of their home’s value.

We will be offering these loans as soon as the final guidelines are issued. I'd be happy to determine if your current loan is eligible for refinancing. Just contact me, 818-952-8666, or email: David@TheFriendlyLender.com.