As announced in a press release from the Federal Housing Finance Agency (FHFA) on October 24, 2011, significant changes have been made to the Home Affordable Refinance Program (HARP) to attract more eligible homeowners. Eligible homeowners may be able to take advantage of historically low interest rates and save money on their monthly payments. This program may be available to homeowners with an existing mortgage owned or guaranteed by Fannie Mae or Freddie Mac.

What enhancements have been made to the program?

This program is unique because it removes the home value ceiling that prevented many homeowners from previously refinancing their mortgage. Home values in many markets have steadily declined since 2006 and that has left many homeowners “underwater” with their mortgages. The term “underwater” means that the homeowner owes more on the home than it is currently worth. Most homeowners in this situation have been unable to take advantage of the historically low interest rates until now. In certain situations, an appraisal may not even be required.

Another unique feature is that this program is specifically designed for homeowners who have remained current on their mortgages. Up until now, most government programs have been designed for homeowners who have fallen behind on their mortgages. One of the biggest complaints was that the government was only providing assistance to these homeowners. These enhancements change that and now Federal refinanceassistance will be available to millions more homeowners.

The program also encourages homeowners to reduce the term of their mortgages and may eliminate certain risk-based fees. Homeowners who choose to reduce the term of their loan may possibly receive lower interest rates than a typical 30-year term and have their home paid off in a shorter time period. This may put homeowners in a better long-term financial situation and depending on their existing mortgage payment, their new payment may be similar or even less.

I’m ready to make an application now!

Not so fast there. This is a government program and there will be some lag time between the announcement and the execution of the program. Similar to other government refinance programs, this program will be administered through mortgage lenders. Mortgage lenders will receive operational instructions by November 15th and some lenders may be able to take applications by December 1st. This program should be in full swing by first quarter 2012.

Homeowners who have maintained or improved their credit should pay close attention to further announcements and contact their lenders for eligibility requirements. This HARP program has been extended through December 31, 2013, so there is plenty of time for those who need to improve credit to take action. They should not hesitate, though, because there is no guarantee that historically low interest rates will remain this low.