Hoping to qualify for a government-backed refinance of an underwater mortgage under the new rules for the Home Affordable Refinance Program (HARP)? Better act fast.

A surge in refinance demand is expected once the new HARP guidelines are announced on Tuesday, Nov. 15. That means those qualified borrowers who get their applications in first will be the first to get approved. Since lenders can only process so many applications at once, those who get in later could end facing could complicate things as they try to sort out how to apply the rules to individual cases. significant delays.

Complicating the situation is that lenders are still going to be coming up to speed on the new guidelines over the next few months, which could delay things as well.

Demand could drive up interest rates

On top of that, it's quite likely the increased demand will drive up mortgage rates, partly because it will enable lenders to manage demand. While a steep increase isn't likely, a rise of a quarter to half a percentage point is quite possible over the coming months, assuming the new rules open up the program to as many borrowers as industry insiders expect.

Bottom line: Get your application in soon, if you're planning to do a HARP refinance. And don't assume a 30-day rate lock will be long enough to see you through the process. Many loan officers and mortgage brokers are recommending that borrowers lock in for 60 days and even that may not be enough if there are complicating factors like a second mortgage.

Loan-to-value cap lifted

HARP, of course, is the government-backed program for refinancing underwater mortgages. The key change in the new program guidelines is that refinancing will be allowed no matter how far a borrower's home value has declined, or how far underwater they are on their mortgage - i.e., in negative equity, or owing more than their home is worth.

Unfortunately, lenders aren't going to be in position to start approving mortgage refinances under the new HARP guidelines as soon as they come out on Nov. 15. Most likely, it's going to take until at least Dec. 1 and in many cases considerably longer before they start applying the new rules. JP Morgan Chase, for instance, has indicated it doesn't expect to have its HARP II program ready until sometime in the first quarter of 2012. Lenders need to study the new rules, understand them and come up with their own guidelines for how they'll handle the program.

Can refinance with any participating lender

One of the great things about the new iteration of HARP is that you won't be stuck refinancing with your current mortgage lender or servicer. Under the new guidelines, you can seek to refinance through any participating lender. So you can start shopping around immediately to see who's ready to start accepting applications, as well as comparing offers from different lenders.

Keep in mind, though, that HARP is a voluntary program for lenders and each will have its own rules on top of the ones established by the government. These "lender overlays" may restrict the type of loans they'll refinance - for example, an individual lender may decline to refinance a mortgage that is too far underwater, even though the HARP program itself has no such limit.

Other main requirements are that the mortgage has to be backed by either Fannie Mae or Freddie Mac, was originated no later than June 1, 2009 and you have to be up to date on your mortgage payments. The program runs until Dec. 31, 2013.

Published on November 15, 2011