Overturning Government Refinance Program Denials

Has your FHA Streamline, HARP 2.0, or VA IRRRL government refinance program application been denied? Despite easy qualification guidelines for streamline refinance programs many lenders are enforcing investor overlays, which are their own rules for approval. If your application for any of these government refinance programs has been denied thanks to overlays here’s what you can do to get your mortgage application approved.

Streamline Refinance Programs For Everyone

Until HARP 3.0, also known as #myrefi is approved there isn’t a streamline refinance program available for everyone. The three programs out there cover millions of homeowners; however, if you meet the minimum requirements to qualify you could still find your lender denying your application for streamline refinancing.

Here’s a quick rundown of the government refinance programs available today.

HARP 2.0 For Fannie Mae & Freddie Mac

If your mortgage loan is backed by Fannie Mae or Freddie Mac and you have very little or no equity then the Home Affordable Refinance Program (HARP version 2.0) is for you. As long as you’re current on you payments and Fannie Mae or Freddie Mac got ahold of your mortgage before June 1st of 2009, you should be HARP eligible.

HARP 2.0 removed the 125% loan to value ratio requirement to be eligible; however, most lenders are enforcing their own loan to value requirements as low as 105% in some cases.

The problem is that many lenders use these so called investor overlays to protect themselves from bad home loans. The government levies stiff penalties against lenders for writing bad home loans with any government refinance program so there is still significant risk for lenders with streamline mortgage refinancing.

FHA Streamline & VA IRRRL Mortgage Refinancing

If you have an FHA or VA home loan you won’t be HARP eligible because the FHA and VA have their own streamline refinance programs. Not having late payments is a common theme with any government refinance program so as long as you don’t have any 30-day late payments you should qualify despite credit, income, employment status or loan to value ratio. The VA streamline refinance works the same way and is called an Interest Rate Reduction Refinance Loan. The problem here again for both FHA streamline and the VA’s IRRRL are investor overlays.

Streamline Mortgage Refinancing Difficult

Existing government refinance programs are intended to make streamline refinancing widely available to American homeowners; however, very few are getting access to these programs. Many, but not all mortgage lenders enforce their own guidelines well above and beyond what the government requires.

These special rules are the investor overlays I mentioned earlier and include minimum requirements for credit score, income verification and even loan-to-value ratios.

The Government Wants to Stop Lender Overlays

The Federal Housing Finance Agency and the Federal Housing Administration have expressed concern that lender overlays are preventing homeowners from taking advantage of today’s low refinance rates. While there is no public policy regarding overlays HARP 3.0 is rumored to include lender indemnification to reduce risk and eliminate these investor overlays.

You can’t really blame lenders for enforcing their own rules. Penalties on a single bad FHA home loan can be in excess of a million dollars and with the current system all of the risk falls squarely on the lenders’ shoulders. If the government offers banks and lenders indemnification it would limit or completely eliminate risk for the most recent lender making overlays unnecessary.

How to Get Your Government Refinance Approved

Program overlays vary from one lender to the next so if you’re denied the best thing to do is shop around. Smaller community based or military credit unions like Navy Federal Credit Union or USAA are an excellent starting point when seeking approval rather than mega banks like Wells Fargo or Bank of America. This is true of any government refinance program from the FHA, VA or USDA. If first you’re not approved, just keep applying.