Historically, say way, way back to 2007, if a lender made a loan written to Fannie Mae, Freddie Mac or Government Guidelines, they could sell that loan to any other lender, investor or to Fannie/Freddie/Govvie directly.  When lenders have a universal platform in which to underwrite it creates a commodity…in this instance a mortgage loan which looks the same, from an underwriting standpoint, at one bank as it does to another.

Things have changed. But before you roll your eyes at that obvious comment it’s important to note that the liquid nature of mortgage loans is vanishing.  No longer can a lender underwrite a loan to Fannie or Freddie standards but must also be concerned with any additional guidelines a mortgage buyer may have that “overlays” pre-existing mortgage guidelines.

In its simplest form, an overlay would be Bank A approving a loan with a 620 credit score.  Bank B may not want any loans on their books with credit scores below 660.  And even though Fannie or Freddie can establish minimum scores, like 620, that doesn’t mean an investor has to accept loans with lower scores.  An overlay is a loan characteristic in addition to the ones previously established by Fannie or Freddie.

In the instance of HARP for example, while Fannie might take an LTV of 125%, other banks may not approve loans in that manner.  Some banks underwrite loans only to 105% LTV.  Under the new HARP 2.0, even though no appraisals are necessary, that doesn’t mean a lender won’t require one.  HARP 2.0 doesn’t have hard and fast rules on credit scores but lenders may impose their own.

Overlays aren’t typically well known by the outside world.  In fact, it’s the lenders and loan officers who are aware of these additional home loan modification guidelines.

What does this mean to you?  If your modification request has been turned down by one bank, that doesn’t mean another lender won’t approve your application under the very same circumstances.  If your modification request has been turned down find out if it’s due to a universal guideline or an “overlay.”  If it’s an overlay, keep dialing…there’s likely a lender waiting for your call.

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After fits and starts with a variety of Loan Modification programs with varying degrees of, or lack of, much success, the 2.0 model so far seems to be a good bet to finally address major issues that homeowners underwater on their property can find some relief.  The Homeowners Affordable Refinance Program, or HARP, has been trying to make its way from the government program to the consumer for nearly two years now with limited success.  The original HARP program allowed homeowners who owe more than their home is worth to refinance to the current low fixed rates.  Yet the obstacles held many back.

First, lenders knew that if any material facts were found later to be in fact, wrong, then the lender would have to buy the loan back from Fannie Mae or Freddie Mac.  Lenders can’t be lenders very long if they have to buy back loans they already made.  Lender’s aren’t lenders if they don’t lend.  Another roadblock with the original HARP program was the amount that could be borrowed compared to the current appraised value of the property.  This maximum loan amount was capped at 105% of the appraised value. For a $100,000 home, the loan could be no more than $105,000 for example.  While that helped some folks it didn’t help the vast majority of upside down homeowners in hard-hit states like Florida, Nevada or California.

HARP 2.0 addresses these concerns.  Buy back provisions have been relaxed so lenders are more likely to take the risk and there is no longer a need for an appraisal.  Why the new appraisal component is important is that loan-to-value limitations are essentially removed…you can’t calculate a loan to value percentage without a value, right?

There are restrictions on the HARP 2.0 just as with the previous HARP program but the two most important are that the mortgage must be owned by Fannie or Freddie (you can go to their websites to see if your mortgage is owned by one of them) and that there can be no more than one late payment more than 30 days past the due date in the last 12 months and zero lates in the last six months.

If you have been turned down before on a HARP loan and you still want to refinance your loan, try again.  It just might your time.

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Related posts:

1. Mortgage Modification Sponsored By The Government, What Is Harp
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1. Mortgage Modification Sponsored By The Government, What Is Harp
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3. Loan Refinance Simple Answers: Profitable Refinancing and Underwater Loans