If you’re like millions of other homeowners who purchased a house during the height of the housing bubble, you may be underwater on your mortgage right now. Even homeowners who followed the rules and put down 20 percent may still find themselves upside-down due to a drastic decline in home prices in certain areas of the country. Unfortunately, these homeowners are unable to take advantage of today’s record low mortgage rates because the homes don’t meet traditional loan-to-value (LTV) ratios.

Thankfully, there may be some good news on the horizon for certain homeowners who are easily able to make their monthly mortgage payment but don’t have tens or even hundreds of thousands of dollars needed to meet the 125 percent LTV ratio. Yesterday, the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac announced that changes are being made to the Home Affordable Refinance Program (HARP).

Previously, the HARP program could only help homeowners who owned around or less than 125 percent of their home’s value. In certain communities in my home state, Arizona, housing prices are off a full 50 or more from their peak. This means that homeowners who can make their payments and have a stable job couldn’t refinance to today’s 4 percent rate and save tens of thousands of dollars or more over the life of the loan.

The proposed changes will eliminate this 125 percent LTV requirement and open up the program to more homeowners. While final details about the new program won’t be delivered to mortgage lenders until November, a few key points were mentioned in yesterday’s announcement.

  • Fannie Mae and Freddie Mac loans made prior to May 31, 2009, with a LTV above 80 percent will be eligible.
  • New property appraisals can be waived if the automated valuation model used by Fannie and Freddie has reliable information on the property.
  • The new HARP deadline will be extended to Dec. 31, 2013
Ultimately, the goal of the program is to help stabilize the housing market while keeping homeowners in their houses. If the housing market stabilizes, then the nation may see the economy begin to improve at a more rapid pace. And if you're interesting in learning more, here's a HARP calculator and FAQ from Zillow.

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