Ask Bill your personal finance question

HARP Refinancing with Fannie Mae's DU Refi Plus

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

I've recently began the refinancing process with a lender that was offering me a DU Plus refinance. Everything was going fine until I was informed that my debt ratio was too high to qualify (they said I'm at 40%). I had an appraisal that put me at 119% loan to value ratio and they told me that I would still be able to refinance if I brought $4000 to closing. I have a 726 credit score and I meet all of the other HARP requirements. Would the new modifications help me to not have to bring money to closing?

Read full question
Bill's Answer
(11 Votes)

Fannie Mae Refi Plus Matrix

  • Fannie Mae has a manual Refi Plus and an automated DU Refi Plus system for your HARP mortgage.
  • Only your original lender can do a manual Refi Plus.
  • Any participating DU lender can process your DU Refi Plus application.

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.
HARP 2 Updates

Read the HARP 2 mortgage page for the latest updates about HARP.

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 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.

Get Mortgage Rates!
(11 Votes)

People also like to Read

Daniel Cohen

Learn home equity basics, how to use home equity, and the different types of home equity loans. ... Read more >>

Betsalel Cohen

Obama Passes HARP, but borrowers are looking for HARP 3.0 Mortgage Refinance programs. When a HARP 3 update is announced, you... Read more >>

Daniel Cohen

HARP Mortgage Program Refinance | Home Affordable Refinance Program (HARP) was just updated to avail low interest rates to mo... Read more >>

Daniel Cohen

US Bank | Learn about US Bank and no-closing-cost refinance mortgage loans. US Bank offers no closing cost mortgage loans, bu... Read more >>

Betsalel Cohen

Low mortgage rates can help you save money. Also, refinance now if you want to lower your payments, take out cash, get rid of... Read more >>

Betsalel Cohen

Did you take an FHA loan a number of years ago? You might be able to lower your payment and/or save big money by refinancing ... Read more >>


Recent Best
1500 characters remaining
  • ML
    Apr, 2012
    Camarillo, CA
    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.
    1 Votes

  • FR
    Apr, 2012
    Antioch, CA
    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?
    1 Votes

  • DL
    Mar, 2012
    San Jose, CA
    How would I tell if I already refinance through HARP or Refi Plus before to see if I would qualified for HARP2.0?
    0 Votes

    • BA
      Mar, 2012
      The only way I know of for certain is to contact your servicer and ask if your loan qualifies for HARP 2.0.
      0 Votes

  • TT
    Mar, 2012
    Mesa, AZ
    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?
    0 Votes

    • BA
      Mar, 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.
      0 Votes

  • DB
    Feb, 2012
    Lakeville, MN
    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.
    0 Votes

    • BA
      Feb, 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.
      0 Votes