News on Mortgage Refinance Reform

There was a reason that President Obama announced changes to the Home Affordable Refinance Program (HARP) while in Nevada earlier this week—Nevada is one of the states with the highest percentage of home foreclosures in the country. The new modifications to HARP are supposed to help more homeowners avoid foreclosure.

HARP was introduced in 2009 as a way to help homeowners who were having trouble keeping their head above water with their mortgages—many of which were considered to be underwater mortgages. An underwater mortgage or borrower occurs when someone owes more on a house than the house is worth. According to Time Magazine, some 11 million Americans fit this category of those that have sunk so far into debt in home ownership that they are now underwater.

While HARP was a good idea in theory, it wasn't working in practice. One of the "old" HARP requirements for refinancing an underwater mortgage was that the loan-to-value of the home couldn't be greater than 125 percent. Now there is no limit on the loan-to-value.

To qualify for the new HARP program, you must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac. Additionally, you have to have been making on-time mortgage payments throughout the life of the mortgage. Even if you have negative equity in your home, you should be able to refinance your mortgage to a lower rate—mortgage rates are at historic lows right now—which would amount to lower monthly payments for you. (Here is refinance paperwork required at most closings.) Also, you needn't stress out about having an appraisal done—a must with most mortgage refinances—because that is no longer necessary for these qualifying underwater mortgages.

This new program should help to curb foreclosures, which would surely be a boost to the slumping real estate market. "This type of reform is crucial in getting help for diligent borrowers, giving homeowners who have a chance to reduce their payments and save their homes the means to do so," says RE/MAX Chairman and Co-Founder Dave Liniger. "We can't afford a higher inventory of homes on the market right now. Something needs to be done and this will certainly help."

According to real estate site Zillow.com, homeowners who qualify for these revised HARP guidelines should be able to begin refinancing in first quarter of 2012. Hopefully, they will be able to keep their heads above water until that time, and don't end up losing their homes due to default on their mortgage in the interim.