The last time the Fed raised rates was way back in 2006. Since that time, rates have gradually fallen as the Fed has tried to get the economy kick started by gradually lowering interest rates over time. As rates fell, homeowners benefited with the lower rates by refinancing. By far, the most popular loan programs are those underwritten to standards issued by Fannie Mae and Freddie Mac, so-called “conventional” loans. Borrowers can literally save thousands when refinancing and lowering their monthly payment.

But a conventional refinance also has a requirement that homeowners discovered kept them from taking advantage of lower rates. That requirement is equity. To refinance an existing conventional loan, lenders want to see at least a 10% equity position in the property, or what lenders refer to as a 90% loan-to-value, or LTV. If the current market value for a property is $100,000, the newly refinanced loan cannot be greater than $90,000. As property values fell in most parts of the country, borrowers soon they owed more on the home than it was worth.

In 2009, Congress introduced the Home Affordable Refinance Program, or HARP. With this new twist to conventional mortgages, borrowers could refinance up to 125% of the value of the property. And while borrowers did take advantage of the initial HARP, there were millions more who still couldn’t refinance due to valuation issues. Later, in 2011, HARP version 2.0 was introduced and the program really took off.

There were several changes in HARP 2.0 but the biggest difference was the lack of an appraisal requirement. Since there is no need for an appraisal, lenders don’t consider property value at all. Once this new guideline was put into place, borrowers could refinance without regard to property values. There are two guidelines that must be followed first however. The current loan must be owned by Fannie Mae or Freddie Mac. You can easily log onto either site and check to see if you loan is currently held there. Remember, who you send your monthly payments to may not necessarily be the one who owns your loan.

Second, your existing mortgage must have been funded and a note date of no later than May 31, 2009. This cutoff period was put into place to deal with homes that were in the middle of the mortgage crisis and not those issued after this time.

This means for those who were told they couldn’t refinance their existing loan because they were “upside down” with their mortgage, it’s time to call your lender and talk about the HARP 2.0 program.

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