HARP 2 Refinance After Short Sale

by Mark in Ft. Lauderdale, Florida USA

Ask Kate about HARP 2 refinance after short sale 2 years ago: Kate: Thanks for all your help here. It's a great forum. I am trying to refinance my first mortgage with my loan servicer under the HARP 2.0 guidelines. They are using Fannie Mae's DU Refi Plus and the problem is a prior short sale over 2 years ago.


Mark continues... DU is giving them an ineligible finding because I am over 80% LTV (well duh, no kidding!) I see in the Refi Plus guidelines (manual underwriting) that there is no bankruptcy or foreclosure waiting period.

But no one (not even my same servicer) is doing manual underwrites because they are exposed to much more risk. Is there any hope for me? This seems contrary to the whole intent of the program.

By the way, I have never been late on any mortgage payment including during the short sale. Two years after the event, my credit scores are in the upper 720's to mid 730's (FICO). My debt-to-income ratio is great with all credit cards paid in full every month. So it's only the mortgage debt that I carry.

Kate Answers: HARP 2 Refinance After Short Sale

***zz-portrait-left.shtml*** Dear Mark,

Consider this! A homeowner who was approved for loan modification through HAMP is still eligible to apply for HARP 2.0 loan if the qualifying hardship has been resolved.

Personally, I cannot see why your situation would be more risky than someone with a past modification, especially since you were never late on your mortgage payment during the short sale.

In just a moment, I'll have some suggestions for you. But first, here's some background on the two Fannie Mae methods offered to lenders for analyzing HARP 2 refinance applications.

Human-Based Fannie Mae Refi Plus

Only the original lender and loan servicer can manually underwrite HARP loans. This traditional method is called Refi Plus.

If there is no greater than a 20% increase in the new HARP mortgage payment, Refi Plus approvals are mainly based on:
  1. Initial eligibility

  2. Borrower benefits

  3. An acceptable payment history on the subject property

Lending Lingo Made Understandable

DU stands for Desktop Underwriting. AUS is an acronym for Automated Underwriting System. The name Fannie Mae evolved from Federal National Mortgage Association (FNMA).

Automated Fannie Mae DU Refi Plus

We've just looked at manual underwriting of HARP 2 refinance under Refi Plus. Now let's compare it to Fannie Mae's automated underwriting system, DU Refi Plus.

Note that DU Refi Plus accepts the responsibility for verifying initial eligibility and establishing borrower benefits.

Lenders like DU Refi Plus because they are relieved from vouching for reasonable ability to repay standards, the dreaded Fannie Mae fine print that could trigger a loan buy-back.

Inside Fannie Mae DU Refi Plus Decision Making

In addition to basic guidelines for credit scores and debt-to-income ratios, DU reviews the complete package. After analyzing hundreds of other factors, including available credit, savings and assets, type of income, residual income, job history, and LTV, it issues an overall recommendation.

Because the AUS is based on approvals of thousands of loans, DU is quite savvy, for the most part. Streamlining the approval process, it saves time and money, as well as reducing the mountains of required paperwork.

But I have seen borderline loan applications receive the go-ahead from DU that made me shake my head, wondering how such a weak file could be approved.

Sadly, I've also seen the converse to be true, strong borrowers picked apart. It would seem this is the group your loan fell into.

So What's Your Next Step

Here is what I'd do if I were you! Disregard the rumor that your servicer quit performing manual HARP underwrites, even if you heard it from your loan originator.
HARP 2 refinances are manually underwritten without exception by the borrower's lender or loan servicer.
Turn your attention to composing a detailed letter explaining the the events that led up to your short sale. Was the short sale brought on by a job transfer? Or an illness in the family? Spell out the entire story. Attach supporting documentation, for example the letter from your employer transferring you to a location too far for a reasonable commute.

It is important to inform your lender of the measures you have taken to prevent or avoid another short sale, if applicable.

Comparing and Choosing HARP 2 Lenders

Then make a written request for your loan to be re-underwritten, this time with a manual review. If the lender refuses or you don't get an approval, move your loan request at once to a different mortgage lender. Second time around, submit your explanation letter with the initial application.

Some lenders add their own restrictions to HARP 2 guidelines. You need to find the lender with the least overlays, especially regarding short sales.

Check with your friends, family, neighbors, co-workers and ask them which lender underwrote their HARP loan. Were they happy with the service and outcome? Would they return to the lender in the future? This is often a good sign.

For more details, go to Compare Harp 2 Mortgage Lenders - Part 1 and Part 2.

Lastly, let your elected representatives on a local, state, and federal level know what you are experiencing. They need to understand what is going on, at an individual and personal level. Homeowners are the backbone of America's economy. They deserve change!

Good luck and best wishes,


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Short Sale and HARP Questions
by: Sandra from AZ

1. Can a person with a HARP loan still short sale their home?
2. After getting a Harp loan, what if it still doesn't
3. What happens to a borrower when they allow the house to foreclose or "go back"?

Hi Sandra, Kate here with a few answers. (I numbered them according to your questions.)

1. Homeowners who want to sell their home and anticipate not having enough equity to pay off their mortgage are applying to the Home Affordable Foreclosure Alternative (HAFA) short sale program. Don't let having a HARP loan stop you!

2. You can apply for the HAMP loan modification to get a lower monthly house payment, one of the plans under HAFA, such as short sale, or as a last resort, a deed in lieu of foreclosure.

3. Foreclosures are reported to credit agencies and can remain for many years on a homeowner's credit history. This lowers credit scores and can make it hard to get future credit. Making Home Affordable recommends going through HAFA for a short sale process or deed in lieu of foreclosure procedure to reduce the detrimental affects on your credit history.

Best wishes, Kate

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