When HARP 1.0 first arrived on the scene in 2009 at the height of the housing crisis, the program’s requirements—especially those around loan-to-value (LTV) ratio—proved too stringent for some borrowers. For the first two years of the program, these difficulties kept hundreds of thousands of Americans from the financial recovery they so badly needed.
But then in 2011, after realizing the shortcomings of HARP 1.0, the federal government broadened the program and made many existing restrictions less stringent in what is now called HARP 2.0. Perhaps, most noteworthy among these changes was the broadening of LTV requirements, changes to home appraisal requirements, lower fees, a deadline extension, and a quicker loan process.
HARP 2.0 and Computerized Home Appraisals
Usually, securing a home loan from a bank requires an appraisal on the property by a licensed appraiser in order to establish the condition and value of the property and, in turn, how much is appropriate to lend to the borrower. If not for this critical step, banks might issue mortgage loans worth more than the value of the home—a step backward for both the bank and the borrower.
With the passage of numerous lending reforms, including the Home Valuation Code of Conduct, a comprehensive set of rules were put in place to discourage mortgage lending fraud and protect borrowers. These reforms also provided new protections to banks, making it harder to issue mortgages to borrowers who might end up with high monthly payments and negative equity.
The creation of HARP 2.0 was also a part of this effort. The updated program introduced a new way to automatically valuate a property for an appraisal. Instead of relying on a licensed human appraiser, the automated valuation model (AVM) used a computer program to calculate the value of a property based on:
- A search of the values of comparable properties in the area
- Past valuations of the property performed in the recent past
- Features, including property enhancements or number of bedrooms
This automated model understandably speeds up the HARP refinancing process, since the borrower and the lender don’t have to wait for an appraiser to visit the property and submit their assessment. In cases where a favorable interest rate is available, this speed can save the borrower thousands in interest payments over the life of the loan. It’s also cheaper than using a human appraiser, which eliminates extra fees tacked onto the loan.
Appraisal Waiver Eligibility
The appraisal waiver mentioned above may not be given to all borrowers. Even in the event that the loan has met requirements to get such a waiver, LTV, property type, and loan type can still cause the appraisal waiver to be rejected. Properties that have appraisal waivers approved usually fall into one of the following categories:
- Single-family homes with 80%+ LTV
- Townhomes and condos
- Single-unit properties for Fannie Mae DU Plus
- Single- or double-unit properties for Freddie Mac Relief Mortgage (Open Access)
For borrowers with Fannie Mae DU Plus loans, a second application will need to be submitted once an appraised value has been assigned to the property. This can often turn into more favorable terms for the borrower.
Other Concerns Regarding Appraisals
It’s important to be aware of the other factors that drive HARP 2.0 refinance decisions. Borrowers with second mortgages, for instance, are often required to get an appraisal by the second mortgage holder. In other examples, people with home equity lines of credit (HELOCs) are often required to use traditional appraisals.
Additional restrictions on HARP refinances can come from mortgage providers and banks. This can result in LTV limits that are more stringent than those provided by the federal government. The good news is, any tighter restrictions imposed by lenders don’t seem to have hurt the impact that HARP 2.0 is having on the higher number of applications and approvals being reported by the Federal Housing Finance Agency (FHFA).
Further Considerations for HARP 2.0 Approvals
It’s important to know that, even with the greater convenience of HARP 2.0, some lenders will still be unwilling to accept new clients. To find out which lenders are looking for new HARP clients, it pays to do some research on the lenders in your area. Our Mortgage Advisors can help you save time and find the right lender for you and your situation.
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It’s also important to note that HARP is not intended to help homebuyers who made reckless financial decisions or have a high likelihood of making bad financial decisions in the future. That’s why the program accepts only those borrowers with at least six months of making house payments on time and no more than one late payment within the last 12 months. HARP applicants must also demonstrate that they know how to use other types of credit—like credit cards and auto loans—responsibly in order to be approved.
Borrower Responsibility and Refinancing
Ultimately, even with the loosened requirements of HARP 2.0 and the convenience of AVM, homeowners would do well to act in their best interest in how they valuate their property. It doesn’t do a borrower any good to overestimate the value of their home and saddle themselves with an overinflated home loan. Remember: an accurate appraisal on a HARP loan is best for banks and borrowers alike.
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