Next Tuesday is an important date for homeowners who have underwater mortgage loans. That's when the federal government is due to release its new guidelines for the revised Home Affordable Refinance Program (HARP).

The new guidelines are intended to make it easier for homeowners who are in negative equity to refinance their home loans at today's low interest rates. Outside of HARP, it's virtually impossible for homeowners to refinance a mortgage if they owe more than their property is worth.

Loan-to-value limit being lifted

Some details are already known about the updated program. The key feature is that a previous limit that restricted HARP refinances to no more than 125 percent of the current home value is being lifted. Under the revised program, homeowners will be able to refinance no matter how much their home value has fallen in relation to their mortgage.

Other key changes include eliminating certain fees that raised the cost of refinancing, eliminating the requirement for new appraisals in many situations and exempting lenders who refinance a mortgage from liability if it turns out the original lender failed to properly qualify the borrower, in the event the new loan defaults.

The program is also being extended through Dec. 31, 2013; it was originally due to expire in mid-2012.

To qualify, borrowers must have mortgages that are backed by either Fannie Mae or Freddie Mac, and were transferred to Fannie or Freddie no later than June 1, 2009. That is unchanged from the current program.

PMI, second mortgages, lender acceptance are still issues

One of the big unknowns about the new guidelines is how they will address underwater mortgages with private mortgage insurance (PMI). Current HARP guidelines allow refinancing underwater mortgages with PMI, but some lenders have been reluctant to refinance mortgages with PMI under the current program.

It's also not clear how the new guidelines will handle second mortgages, which have often been an obstacle to refinancing under the current guidelines.

The biggest question, however, is how lenders will respond to the new guidelines and whether they will be agreeable to refinancing underwater mortgages under the new rules. Since the program is voluntary, it's up to them whether to refinance any given mortgage or not. Also, lenders will likely impose their own guidelines over the top of the new federal rules, which could present additional obstacles to refinancing.

Following the Nov. 15 release of the new guidelines, the first lenders are expected to begin accepting applications for HARP refinances under the new rules as soon as Dec. 1. Others may take until late winter to put their own rules in place, and others may still choose not to participate.

    Published on November 11, 2011