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APR 13, 2012

HARP Refinancing with Fannie Maes DU Refi Plus

Can I do a HARP refinance through Fannie Mae's Refi Plus automated system?

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Fannie Mae Refi Plus Matrix
Bill's Answer: Bills.com Resident Expert

Thank you for your question about DU Plus refinance and the HARP program.

Background Information

Before I get to the specifics of your question, here is some general background information to better understand the economic climate and how the largest mortgage investor, the federal government, has responded. Since 2009, the Home Affordable Refinance Program (HARP) program has helped more than 1 million homeowners refinance their underwater homes. The new HARP 2.0 changes are expected to include at least another 1 million homeowners by the end of 2013.

As an illustration, you can see that Freddie Mac's loan purchases for single family homes during the third quarter of 2011 included 22% relief refinances, of which 11% were loans with LTVs over 80%.

Freddie Mac loan purchase by type for 3rd qtr 2011
Source: Freddie Mac’s Q3 2011 supplement financial statement.

The HARP Program at a Glance

The US housing market has been in a state of upheaval since the 2008 crash. As prices dropped, many borrowers found themselves in a situation where their house is worth less than the balance owed on their home loan. President Obama, and the US government stepped up to create Making Homes Affordable and various other programs, like HARP, to help Americans stay in their homes. These programs cover homes all across the country, in different types of properties. The rules and regulations are lengthy and not always easy to understand.

In October 2011, HARP was extended until the end of 2013. New guidelines were announced on November 2011 by the two secondary mortgage market participants of the HARP program, Fannie Mae and Freddie Mac. Both buy loans from mortgage originators, such a independent brokers and banks big and small.

For more information about the HARP program, eligibility and updates see Bills.com resource HARP Mortgages.

The Underwriting Process

Mortgage underwriting is a complicated process, as the guidelines for eligibility cover a vast set of possibilities. Each secondary market participant has its own processing systems, including manual and automated systems. Freddie Mac uses the Loan Prospector (LU) system and Fannie Mae the Desktop Underwriter (DU) system.

Fannie Mae uses the tradename Refi Plus to process the loans under the HARP program, differentiating between the manual Refi Plus and the automated DU Refi Plus.

Although it is out of the scope of this article to address the types of approvals in the DU system, you should know, that these are the acceptable outcomes :

  1. Approve/Eligible
  2. Expanded Approval/Eligible
  3. Approve/Ineligible
  4. Expanded Approval/Ineligible
  5. Refer/Eligible
  6. Refer/Ineligible
  7. Refer with Caution/IV
  8. Out-of-Scope

Your lender should provide you with an accurate picture as to why you do not qualify, and what steps you can take to rectify the situation.

Fannie Mae’s November 2011 guidelines

You mention several criteria in your question relating to the HARP program. Let's examine each criteria based on the new November 2011 guidelines:

Criteria DU Refi Plus Refi Plus (manual)
The Lender Approved Fannie Mae user of Desktop Underwriter Original lender (or affiliated and current server.
Loan to Value (LTV) No maximum rate, although will be active in DU system March 2012. Valid for fully amortizing loans up to 30 years. Up to 105% if term is up to 40 years or interest rate is ARM, with initial period for at least 5 years. Same limits but will be effective as of December 1st, 2011.
Debt to Income (DTI) Subject to the maximum allowable DTI in the DU system. According to the October 2011 Selling Guide, the maximum allowable DTI is 45%, with exceptions up to 50%, if there exists strong compensating factors. No maximum DTI ratio except when principal and interest payments increase by more than 20%, in which case the maximum allowable DTI is 50%.
Credit Score No minimum credit score required. DU performs its standard credit risk assessment. which includes a comprehensive review of the borrower's credit history. Lender must comply with all other requirements in the Selling Guide. No minimum credit score requirement. (Therefore the borrower will not benefit from a high credit score in the pricing of the product).

If the payment increases by more than 20%, then the lender must make additional inquiries. In addition to payment history, the borrower must be re-qualified based on income and asset documentation, a maximum DTI of 45%, and a minimum credit score of 620.
Appraisal It is possible to obtain a property fieldwork waiver under certain circumstances, but currently not if the LTV or CLTV is above 125%. This is only available for one-unit properties, and primary residences, second homes and investment properties. Requires new appraisal.
Limited Cash Out Refinance (LCOR) According to Fannie Mae’s selling guide from October 2011, part B5-5.1-05, the new loan can include:
• Payoff of the unpaid principal balance of the old loan
• Financing of the payments of the closing costs, prepaid items and points
• Cash back to the borrower in an amount no more than $250. (If it is more than $250, then it can not be classified as a DU Refi Plus loan).
• All existing subordinate financing must be re-subordinated.
• No new subordinate financing is allowed.


Transferring from DU Refi Plus to Refi Plus (Manual)

There is the possibility to transfer a DU Refi Plus casefile to a manual Refi Plus file under the condition that the lender is the current servicer of the loan, the loan complies with all Refi Plus requirements, and if the loan meet with one of the following DU recommendations.

  1. Approve/, EA- I/, EA- 2/,EA-III/Ineligible loans: The lender can transfer those loans to a manual Refi Plus loan if the only reason for the ineligible recommendation was an excessive debt-to-income ratio.
  2. Refer with Caution/IV recommendation: The loan can be transferred to the manual system.

Bringing Money to Closing

You have indicated that your lender has begun to process the application through the DU Plus system and you meet all the HARP qualifications, including these specific ones:

  • LTV: 119% - You qualified in the old system.
  • Credit Score: 726 - No minimum credit score in the old system.
  • Debt to Income Ratio: 40% - Same maximum requirements in old system, although less stringent in the manual Refi Plus system.

It is unclear why you did not qualify for the HARP refinance program. Furthermore, there is no mention in the HARP guidelines of bringing funds to closing. The opposite is true, as you can take out a limited cash-out refinance (LCOR), covering closing costs such as points. Certain out-of-pocket expenses you pay prior to closing, such as an application fee, can be refunded at closing. You are able to take out up to $250 in a LCOR Refi Plus.

Subordinated financing

One possibility where you might have to bring money is if the subordinated financing does not agree to the refinance and requires a pay-off or a partial payoff.

Check carefully with your lender as to the exact terms under which you qualify. You are entitled to receive a detailed answer regarding problems, as well as requirements you fail to meet.

The new HARP program is designed to help good borrowers save money and improve their ability to maintain their monthly payments or build equity more quickly, despite having an underwater property. If your lender is not willing to do a Refi Plus loan, then check with other authorized Fannie Mae lenders, in order to find the best deal you can on a HARP refinance.

Comments (19)


Mary L.
Camarillo, CA  |  April 13, 2012
I am currently doing the Harp 2, I think it's the Du Refi Plus. I am being told I have to do it as an investment. At first my rate was going to be a 3.75% for second home, now they changed it on me. For investment going to be 4.25% for 20 years. They are saying I have to do appraisal and it will be $650 instead of $450 because investment loan requires more thorough appraisal. Anyone know if this is true about appraisal, I thought it was not required. There closing costs are pretty good $2K less than what my current lender B of A wanted. B of A wanted to add almost $7K to my loan.
Fernando R.
Antioch, CA  |  April 09, 2012
I meet all qualifications of HARP 2.0. However I have been turned down by Quicken Loans and by New American Funding, of Irvine, CA, mainly because I short sold a rental over two years ago. From what I understand from Refi Plus, Fannie Mae removed the requirement that the borrower meet the standard waiting period following bankruptcy and foreclosure...(let alone short sales). Any suggestions?
Diane L.
San Jose, CA  |  March 20, 2012
How would I tell if I already refinance through HARP or Refi Plus before to see if I would qualified for HARP2.0?
Bills.com
March 20, 2012
The only way I know of for certain is to contact your servicer and ask if your loan qualifies for HARP 2.0.
Tom T.
Mesa, AZ  |  March 16, 2012
So, am I correct in understanding that if you are currently making payments in a chapter 13 bankruptcy you are not eligible for HARP 2.0?
Bills.com
March 18, 2012
That is true as far as the Fannie Mae DU Refi Plus loan is concerned. Since bankruptcies are complicated, I recommend that you speak to your original lender and verify if they can help you.
Dana B.
Lakeville, MN  |  February 14, 2012
My former husband and I are in the process of completing this new loan program through Bank of America right now. My wish is to have my name taken off the mortgage, as he resides in the home and makes all payments. I was informed that this can't be done. Is this true? Is it possible to do a loan assumption so my name may be removed. Apparently only a refinance can take my name off the loan? Please advise.
Bills.com
February 15, 2012
If you are speaking about the HARP 2.0 program, then yes it is possible to remove a person from the loan. The two conditions are that the borrower who remains show proof that he or she has been making payments for the last 12 months, and the borrower who is being removed from the loan will also need to remove him/herself from the deed.

Your ex can only assume a loan if the loan is assumable in the first place. Check the terms of your original loan. If it is assumable then you may want to go in that direction, provided that your ex qualifies to assume the loan, rather than refinancing.
Ron G.
Oak Park, IL  |  February 12, 2012
Can a DU Refi Plus be done on an investment property if the co-borrower has had a Chapter 7 Banktrupcy? There are no mortgage lates on this property & it was purchased in 2007.
Bills.com
February 14, 2012
Investment properties are eligible for a DU Refi Plus loan. As regards the Chapter 7 bankruptcy, these are the rules according to the Fannie Mae Selling Guide:
if it was within 48 months of If a non-Chapter 13 bankruptcy was filed, discharged, or dismissed within the last 48 months, the loan casefile will receive a Refer with Caution/IV recommendation and will be ineligible for delivery to Fannie Mae.
If you are not eligible for the DU Refi plus loan, you can check with your current lender if you can do a manual Refi Plus loan.
Beth S.
Vancouver, WA  |  February 02, 2012
I have a BOA good old normal loan taken in 2003 , bal is $77000, its a fannie , home value is $250000. I want to refinance to a 10 year. BOA is telling me they will do a Harp 2.0. Why? I don't need a Harp, and my gut say's , don't do it! I just read on this site about Anti -deficiency laws , non-recourse, making me nervous. I live in WA State.
Bills.com
February 03, 2012
It does not make any sense why BOA would offer you a HARP loan. The HARP program is intended for borrowers who are underwater or with limited equity, which is certainly not your case, unless you have a large second mortgage loan you did not mention. Expand your shopping to include regular, non-HARP refinances that may offer more attractive rates and terms.

I don't think you should worry about anti-deficiency laws, because your equity stake is so high. Put another way, if you sold your home today for $250,000 and your loan balance is $77,000, you could pay off the loan balance with ease. This would not be the case if, for example, your home sold for $77,000 and you had a $250,000 home loan balance. In that situation, preserving your state's anti-deficiency protections would be your paramount concern.

It is better to focus on savings in your refinance shopping. Another solution to bringing down the term of the loan is to make prepayments, either a monthly addition to your payment or occasional lump sums.
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Gregg D.
Fairfield, CA  |  February 09, 2012
Dear Bills.com, You obviously don't understand the benefit of refinancing with HARP regardless of LTV. By doing so, their refinance would be streamlined without the need for appraisal. They won't have to income or credit qualify and it will be done in a snap. Anti-deficiency has nothing to do with this. You advice is terrible advice and potentially costly to the borrower. If anyone qualifies for HARP, their loan should be processed as such.
Bills.com
February 10, 2012
One requirement of HARP 2.0 is the loan's current LTV must be greater than 80%, which was not the case for the reader asking the question. If we are mistaken about the LTV requirement, then we welcome your assistance in finding the document that clarifies HARP 2.0 LTV requirements.
Avatar
Beth S.
Vancouver, WA  |  February 10, 2012
Gregg D, are you saying I should accept BOA's Harp 2 offer , won't my interest rate be higher than traditional? And , lets say next year I find myself unable to make payments, will I be ineligible for HAMP because I did HARP? If BOA,makes me call a "special" number and gives me a higher rate because a HARP is help, are you sure that my credit won't be affected?
Avatar
Gregg D.
Fairfield, CA  |  February 10, 2012
If BofA is offering you a refinance now, it's being done as Refi Plus, which is the same servicer manual underwrite of HARP. If you were to switch servicing and go to another lender, it would be DU Refi Plus and that's currently unavailable for HARP 2.0 until March 17, 2012. But you don't need HARP 2.0 anyway so I'm sure it's being underwritten as Refi Plus.

The loan level pricing adjustments for Refi Plus can be found in the Fannie Mae Refi Plus Mortgages Only (pdf) document.

They clearly show that LTVs under 80% are allowed. I cannot tell you if you should accept the offer because I have no idea what rate and terms they are offering. What I can tell you is that there is nothing nefarious about them doing it as HARP. As with any refinance, you should get other quotes. I am a NMLS licensed MLO #247044 and an expert on this subject.
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Jay B.
Rahway City, NJ  |  February 14, 2012
I was going trhough a HARP 1.0 DU Refi Plus process (in NJ). I paid $400 for an appraisal (came in at $295k versus $284k owed on existing loan). The broker required some additional documentation late in the process and this delayed things, supposedly requiring an extension of the lock period and the lender/broker is now unable to offer me the originally offered 1/2 pt credit toward closing costs (they say, due to the fee for extending the lock). We are considering going to a new lender since rates have dropped further since our lock anyway. A couple of questions. If we wait for HARP 2.0, will this allow us to eliminate the need for another appraisal? Also, we noticed that our interest rate and level of associated lender credits available seemed to depend primarily on the LTV ratio. How might the elimination of the LTV requirement as well as other changes in HARP 2.0 (reduced risk and fees for lenders etc.) impact the rates and lender credits we might encounter versus the recent dealings we had with a 1.0 DU Refi Plus negotiation? Thus, should we wait until March 17 to begin dealing with another lender/broker? Thanks!
Bills.com
February 15, 2012
The new HARP 2.0 program may reduce the costs of some loans for the lenders, however, it is unclear how this will affect the mortgage rates and mortgage fees. It is certainly worth shopping around. As regards the appraisal, the lenders may require an appraisal or certain fieldwork. Whenever you speak to a new prospective lender, bring up the question of the need for a new appraisal.
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Courtney C.
Schenectady, NY  |  April 13, 2012
If you want to refinance your home to a 10-year, then harp is not for you. If you are underwater and need help and want to refinance this HARP is for you. If you are below 80% loan-to-value and you still want to take advantage of the programs out there, then a DU Refi Plus is right for you.
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