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Blake Kleckner

Much Ado About HARP 2

Tuesday, May 22, 2012 - Article by: Blake Kleckner - DiVita Home Finance - Message

Now that HARP 2.0 (h2) has been with us a few months, some clarifications about it need to be made. I know, I know, almost everyone has access to the internet so they can get all the information they need there, right? However, what happens when it is contradictory, which, quite often, is the case? Where can the right answers be found to important questions? Below are a few things you need to know about h2 but, perhaps, didn't know to ask.

To begin with, the lenders do not have to do h2 loans. It's their choice. We work with 39 and only about a half are doing them. The others apparently feel the risk is too great even though the U. S.government has, supposedly, assured them that having to buy back h2 loans in the future if, for some reason, homeowners default on them, won't be required.

Furthermore, the terms of all h2 loans are controlled by the lenders doing them--not our government that designed this amazing loan program. If that was the case, all homeowners who qualify for these incredible loans would be able to get them regardless of what their loan balances are compared to their homes' fair market values (FMV), and with the lenders' loan level price adjustments (LLPAs), also called "overlays" (a somewhat cryptic way of saying "We're going to charge you more because we can") capped at .75%. Nothing could be farther from the truth.

While many lenders say they cap their LLPAs at .75% for h2 loans, they do not. With some lenders, LLPAs of .5% to 1.5% added to their caps for homes with loan-to-value ratios (LTVs) greater than 97%, are not uncommon, as are LLPAs for homeowners whose FICO scores are less than 760. There are many more of these "hidden" LLPAs too numerous to mention, but suffice it to say it takes a knowledgeable loan officer to guide you through this tricky maze of extra h2 costs.

As far as unlimited LTVs are concerned, most lenders are not allowing them, but rather have set maximum LTVs on the h2 loans they will do. This, of course, makes it much more challenging for homeowners with homes that have high LTVs to find lenders willing to do their loans at reasonable interest rates and costs.

In addition, many lenders have structured different sets of interest rates and costs for different LTVs--less than 105%, 105.01 to 125%, 125.01% to 140%, 140.01% to 150%, and over 150%. The cost difference can be as much as 5.125% for loans with LTVs less than 105% compared to those with LTVs over 125%. On a $300,000 loan, that amounts to $15,375 more.

Also, some lenders will only do h2 loans up to certain LTV limits for non-clients. A good example of this is Wells Fargo Bank. While it will do unlimited LTV loans for its clients, it will only allow up to 105% LTVs for non-clients. A few lenders won't do h2 loans for non-clients at all.

Another myth that needs to be dispelled is that no appraisals are required with h2 loans. This may be true--or it may not. It all depends upon the findings of the Fannie and Freddie computer programs that decide for all borrowers whether they qualify for h2 loans. If the findings say an appraisal is necessary, then it must be done, and vice versa.

What's really strange about this is that it appears if these programs come up with FMVs close to the "guesstimates" on loan applications, the likelihood of appraisal waivers is quite great. On the other hand, if the FMVs are much too high or too low on the applications, waivers won't be allowed.

Of course, this method of determining who will, and who won't, get appraisal waivers raises the question "Why should it matter what FMVs are on loan applications when they are strictly guesses?" The simple explanation is there is no explanation. Considering that h2 was designed for homes with unlimited LTVs, what difference should the FMVs make on either the loan applications, or what is determined by the Fannie and Freddie computer programs?

Even more baffling is that if an appraisal waiver is granted by Fannie or Freddie for a home with a 125% LTV as determined by them, which happens to be close to the FMV on the loan application, the lender won't require an appraisal to be done but will never know if the FMV is truly 125% or less. There doesn't seem to be a whole lot of logic to this.

These are just a few of the unsolved mysteries of h2 loans. Many more exist in the fine print on the lenders' rate sheets. Perhaps one day they will all be discovered and clarified--perhaps not.

In the meantime, though, if you believe that you qualify for this extraordinary gift compliments of the U. S. government, don't delay for a nanosecond exploring the tremendous benefits that can accrue to you with h2. It is real, it is happening now, and it costs nothing to determine the HUGE monthly mortgage payment savings that can be realized.

Just make sure, as much as possible, that you align yourself with a loan officer who is extremely h2 bsavvy, and has a multitude of quality lenders to choose from on your behalf. And, by all means, don't go to a bank where you will be stuck with only its limited loan programs, and will, unquestionably; wind up with a higher interest rate and loan costs, that is, if the bank will do the loan at all.

If you do qualify and take advantage of this monumental mortgage loan refinancing program, you will experience a life changing event. I am currently working with clients whose homes have 273%, 227%, 195%, 168%, 126%, 111%, 108%, and 97% LTVs. Many of their loans have closed, and the others will close in a matter of weeks. All of these homeowners will enjoy interest rates significantly lower than the current ones on their loans, and will save from $400 to $1,100 monthly.

This is an opportunity that comes around, maybe, once in a lifetime. Don't let it pass you by!

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