Helping Homeowners That Are Upside Down

On October 24, 2011, the Federal Housing Finance Agency (the “FHFA”) and Fannie Mae and Freddie Mac (the “GSEs”) announced an expansion of the Home Affordable Modification Program (the “HARP”), or so called “HARP Phase II”, in an effort designed to assist additional “underwater” borrowers.  While the program is limited to loans originated and sold to Fannie Mae or Freddie Mac prior to May 31, 2009, one intriguing feature of the program is the limitation of required representations and warranties from lenders making such loans to the GSEs. This feature could lead to a reduction in repurchase demands for a certain segment of GSE loans refinanced under HARP Phase II.

Prior HARP refinances were subject to a maximum LTV of 125%. That
limit has been removed for fixed rate mortgages; adjustable rate refinances are
still subject to a maximum LTV of 105%. In addition to the lessening of
representations and warranties, the removal of the upper limit on LTV ratios,
and the current low interest rate environment could provide this program
momentum producing results beyond those of past HARP or other Making Home
Affordable programs.

The GSEs plan to issue guidance with additional details about the
program changes mid-November. Participation in HARP is not mandatory; therefore, mortgage entities wishing to participate will have time to review program amendments and implement necessary operational changes.