The Home Affordable Refinance Program (HARP) was rolled out by FNMA and FHLMC in 2009 to give homeowners the ability to refinance even if the decline in their home's value would limit refinance options or prevent a refinance altogether. In October 2011, FNMA and FHLMC announced changes to the HARP program in an effort to attract more eligible borrowers to refinance. HARP only applies to FNMA or FHLMC loans. In addition, a qualifying loan must have been purchased by one of the agencies prior to 6/1/2009, which means the loan should have closed in early 2009 because of the delay from when the loan closes to when the agencies actually take possession of the loan from the originating lender.

The primary benefit of HARP Refinance is the ability to refinance high loan-to-value loans without mortgage insurance if there was no insurance in place when the original loan was obtained. For example, if your rate is 5.0%, your loan was purchased by FNMA prior to June 2009, and your original loan to value was 80% or less, you could use HARP to refinance without mortgage insurance even if your equity position has disappeared. With 30 year mortgage rates around 4%, you could experience a significant savings by dropping your rate 1%. Without HARP, a refinance may still be possible, but the cost of the mortgage insurance will offset some of the rate savings. All other aspects of a HARP loan are the same as any other loan: you need to have income and be able to qualify for the mortgage, your credit needs to be OK (minimum credit score 620), and the home must be in a "lendable" condition.

Before getting into the changes to HARP, I'd like to offer some relatively unknown details about how the agencies price loans that will provide context for appreciating some of the changes. When the markets collapsed and the housing agencies started hemorrhaging cash, they instituted Loan Level Pricing Adjustments (LLPA) and Adverse Market Delivery Charges (AMDC) as a means to fix their balance sheets on the backs of homeowners that were still able to obtain loans. Sorry, I couldn't resist adding a personal commentary regarding the intent of the charges. The fees were intended to price loans based on the risk inherent in each loan, something the agencies failed to do in the run-up to the collapse. LLPA is the more significant of the two fees. It adds fees to a loan based on loan type (purchase, rate/term refinance or cash out), loan to value, and credit score. To illustrate the impact of the LLPA, a borrower with a 620 credit score will pay a rate nearly 1% higher than a borrower with a 740 credit score on an 80% loan to value, no cash back refinance. This is an extreme comparison, but it does show the impact of these added fees. For HARP loans, the agencies have put caps on the sum of the LLPA and the AMDC. In the above illustration, the borrower with the lower score would pay only .625% more if they qualified for a HARP loan due to the cap on the adjustments.

Finally, here are some highlights of the changes

- Reduced fees charged by the agencies on loans with a loan to value in excess of 80% (effective 1/3/2012). On loans with amortizations of 20 years or less, the LLPA and AMDC are eliminated. On 25 and 30 year loans, the cap is reduced, which means the borrower with the lower score in the example above saves another .25% in rate.

- Removal of loan to value cap on fixed rate mortgages (effective March 2012) - no equity, no problem. In fact, negative equity refinances will be allowed.

- HARP program extended to 12/31/2013.

- Eliminating the fees on 15 and 20 year loans is significant. Rates on those loans are already well under 4%, so this should open up refinance opportunities for borrowers that are interested in the rapid principal reduction that comes with shorter amortization mortgages. The reduced caps on the other loans will help substantially too. One caution about the changes to the loan to value cap; sometimes lenders do not adopt changes announced by the agencies word for word. Some overlay their own underwriting guidelines and they are always more conservative. While FNMA and FHLMC may state they don't have a loan to value limit for fixed rate HARP loans, many lenders will have a cap.

The agencies continue to tweak their programs with the goal of improving the performance of the loans in their portfolio. If you haven't refinanced yet, maybe this change is the one that will benefit you.