Revamped mortgage program: Will homeowners be able to refinance?

President Obama flew to Las Vegas, ground zero of the housing crisis, to unveil a revamp of the Home Affordable Refinance Program.

With mortgage interest rates at near historic lows, millions of homeowners have refinanced to rates as low as 4 percent for a 30-year fixed-rate mortgage or 3 percent for a 10-year fixed-rate mortgage.However, millions of other homeowners are underwater with their mortgages (i.e., their mortgage balance is higher than the value of the home) and cannot refinance.

The original HARP program was designed to help borrowers up to 125 percent underwater (i.e., borrowers who have a first mortgage balance of up to 125 percent of the home’s current value). It has been a colossal failure, having helped only 70,000 underwater homeowners take advantage of lower mortgage rates.

The new program eliminates the requirement of an appraisal in most cases. To qualify, homeowners must have been on time with their mortgage payments for at least the last six months and must not have missed more than one payment in the past year. Borrowers may not be in foreclosure or bankruptcy.

The good news for trouble real estate investors is that a second home or investment property may now qualify for a refinance. If it is an investment property, the building must have no more than four units. The property may be a single-family home, a condo or a co-op.

The existing mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. The new HARP program will come in phases, starting with loan applications dated December 1, 2011 or after. For borrowers who are more than 125 percent underwater, the start date will be sometime in the first quarter of 2012.

The HARP program was originally set to expire in 2012. The new rules extend HARP through December 31, 2013. President Obama said the process would be streamlined in order to make it less onerous on borrowers.

Nevertheless, the devil is in the details. The four biggest mortgage companies — Chase, Wells Fargo, Bank of America and CitiMortgage — have agreed to participate, but that participation is voluntary and each of the banks has the right to make changes to the program. That could make it difficult for borrowers to understand what the program at their bank is and why it is different from what they’ve been hearing from other news sources.

HARP’s aim has been to reduce the borrowers’ monthly payment by providing a new loan at a lower interest rate, and it also may be used to replace an adjustable-rate or interest-only loan with a standard fixed interest rate loan. It does not usually cut the principal balance of the mortgage, something that borrowers have been asking for but that lenders have been reluctant to provide.

Until the software is rewritten and tested, until the rules are written and published, and until borrowers have gone through the system and successfully emerged, loan modification in hand, there’s no telling exactly what this latest revision of HARP will do for the housing crisis, or the economy.