A new bill called the Responsible Homeowners Refinancing Act of 2013 has been introduced in Congress for the purpose of simplifying the process of changing mortgage providers by eliminating some of the closing costs, such as home appraisal costs under HARP 2 programs.
By way of recap, the Home Affordable Refinance Program was originally made law in early 2009 for the purpose of assisting homeowners whose homes had declined in value by enabling them to refinance mortgages that were held by Freddie Mac and Fannie Mae at lower mortgage rates. It also eliminated the requirement to purchase new private mortgage insurance (PMI) in the case of homeowners who had made a twenty percent equity payment initially and then lost their equity when housing values plummeted.
Additional relief was provided to homeowners under HARP 2.0 in 2011. The requirement that Loan-to-Value (LTV) could not exceed 125% was removed and replaced with no limits on LTV. Two cities which especially benefited from this change were Miami Florida and Las Vegas Nevada, where many homes had lost half of their value.
Additional benefits of HARP 2.0 were the capping of Lender's fees for mortgages with higher LTV ratios and also in cases when homeowners refinanced into 15 year fixed mortgages.
Quantitatively Harp 2.0 benefited far more home owners much faster with a participation of one million homes in only eight months, compared to the original HARP taking 3 years to reach as many people.
Although it should be emphasized that the new Bill is not yet law, it seeks to expand the reach of the HARP programs by providing additional benefits. It would resolve a major inconsistency in the current programs, which favor loans with LTVs over 125% by capping their loan fees with proportionally lower closing costs for these higher risk loans. The same limitations on closing cost and loan fees would now apply to all mortgage loans, so that homeowner loans with lower LTVs will be treated more equitably.
Another major modification involves credit standards. This Act, the Responsible Homeowner Refinancing Act would no longer consider income and employment verifications in the approval process. It is based on the current HARP requirement, which is that homeowners who refinance must have good payment history. This Bill asserts that good payment history alone is sufficient to determine eligibility and payment capability without further verifications, regardless of whether the homeowner, is employed, unemployed or retired, and what source of income they may have, if any.
In this regard the Act mimics FHA's policy under its FHA Streamline Refinance program and VA's standards for its Interest Rate Reduction Refinance Loan (IRRRL) program.
Finally, the Bill requires Fannie Mae and Freddie Mac to establish alternate home appraisals, which will cost less than a full appraisal and not require home visits. Both of these two government mortgage entities already use automated appraisals to establish home values within specified, reasonable ranges.
The Responsible Homeowner Refinancing Act of 2013 would benefit eligible homeowners who have:
- Mortgages presently owned or guaranteed by Fannie Mae or Freddie Mac
- Mortgage securitized by Fannie Mae or Freddie Mac on or before May 31, 2009
- Mortgages that have not been previously refinanced via HARP. There is an exception for Fannie Mae loans refinanced under HARP between March and May 2009
- Mortgages with a loan-to-value ratios of 80% or greater
- Mortgage which are current and which have perfect payment histories for the last 6 months