December 1 is when lenders are scheduled to begin implementing the new HARP guidelines for refinancing underwater mortgages. But you might not be able to refinance that underwater loan just yet.

Although lenders can begin refinancing mortgages under the new rules as soon as their get their own programs in place, most will likely wait until late winter or early spring before they begin to approve significant numbers of refinances.

That's because a largely overlooked aspect of the new HARP rules makes it more risky for lenders to refinance a loan under the new rules right away, rather than waiting a few months.

Underwriting software still being updated

The delay has to do with something called automatic underwriting. When lenders write a new mortgage or refinance an existing one, they typically enter the data into an underwriting program, which then tells them whether the loan is approved or not. However, Fannie Mae and Freddie Mac, which set the guidelines for HARP and own or insure the mortgages involved, are still in the process of updating their automatic underwriting software to reflect the new HARP guidelines.

That could take until March. In the meantime, lenders can still do HARP refinances under the new guidelines, but only if they underwrite them manually. That's usually not a problem, but the new HARP rules provide lenders with specific protections against bad loans if they use the automatic process. So they'll have a pretty strong incentive to simply wait until the new software is ready before approving many refinances.

May need to wait to switch lenders

The delay will likely have the most effect on borrowers who wish to refinance with a different lender than they have now. The automatic underwriting rules protect a lender against liability for mistakes made by the lender of the original mortgage, so they're not likely to take over somebody else's loans without that protection.

Of course, the biggest impact of the new HARP rules is that they allow lenders to refinance a mortgage no matter how far underwater the homeowner is - that is, no matter how much the loan balance exceeds the value of the home.

Extent of lender participation still in question

What remains to be seen is how many lenders will participate and to what extent. While most major lenders have been participating in HARP, many have declined to refinance mortgages more than slightly underwater, even though the old program guidelines allowed them to go as high as 125 percent of the home value. Now that the cap has been lifted, it's not yet clear if lenders will raise their own limits, even with Fannie Mae or Freddie Mac guaranteeing the loan.

To qualify for the program, a borrower must have a mortgage that is currently owned or guaranteed by Fannie Mae or Freddie Mac - something that can be checked through the two lenders' web sites. Borrowers must be the owner-occupant of the property being refinanced, must be current on their mortgage payments and the current loan must have been sold to Fannie Mae or Freddie Mac before June 1, 2009.

For more information, check with your mortgage servicer (the company you send your mortgage payments to) or check the Fannie Mae or Freddie Mac web sites.

Published on December 1, 2011