WASHINGTON -- The most ambitious federal mortgage program to date aimed at millions of underwater homeowners is poised to take off in the coming two weeks, yet some key issues could hinder borrowers' participation. One involves something most owners know nothing about: the mortgage insurer.
The second version of the Home Affordable Refinance Program will hit full stride around the middle of this month.
The revisions are crucial for owners who have outstanding mortgage balances in excess of 125 percent of the current resale values of their homes. Under the revisions, there is no upper limit on permissible loan-to-value ratios. A borrower can owe twice or even three times the value of the house and still qualify for a refinancing at today's low interest rates. The earlier version imposed a limit of 125 percent.
The revision also streamlines underwriting -- no requirement for physical appraisals in many cases, speedy processing, and elimination of some of the deal-breaker fees imposed by Fannie Mae and Freddie Mac in recent years.
The objective, federal officials say, is to remove obstacles to widespread participation by lenders and severely underwater borrowers. Industry studies estimate that as many as 6.9 million loans could fit the broad requirements for refinancing, but that about 2 million borrowers are likely to qualify on all the detailed eligibility criteria.
Among the key rules:
● Only loans owned or guaranteed by Fannie Mae and Freddie Mac are eligible. Both companies' Web sites -- fanniemae.com and freddiemac.com -- offer "look up" features that tell you whether they own your loan.
● The mortgage must have been purchased or securitized by either company no later than May 31, 2009, and must have a loan-to-value ratio in excess of 80 percent.
● The borrower must be current on the loan, with no 30-day late payments during the six months preceding application and no more than one late payment during the last 12 months.
But a little-noticed glitch has arisen in the program. Some lenders may not want to proceed with an application solely because of a detail buried in the loan documents that was always beyond the borrower's control: the mortgage insurer. If it is United Guaranty Corp., lenders may set an application aside because that firm alone has not agreed to adhere fully to the streamlined procedures other insurers accepted as part of the basic deal to kick-start the revised refi program.
Some major lenders, such as Quicken Loans, said in interviews that they will have to either set aside or reject applications on which the original loan carries United Guaranty insurance. United Guaranty, a subsidiary of giant insurer AIG, said in an email statement to me that it "fully supports the Obama Administration's efforts" in revising the refinancing program and that only a "minority" of its insured mortgages should be affected by its policy disagreement with the rest of the industry.