This is a question I come across everyday. This answer is not always black and white. It all depends on the person's needs and goals are in order to determine if the HARP 2 upside down refinance is right for you.
# 1 Your loan must be owned by Fannie Mae or Freddie Mac
This is the most important requirement and the first step in determining if you qualify. You can search for the Fannie Mae or Freddie Mac loan look-up tool and get a result within seconds. If you don't get a match right away doesn't mean you don't qualify for HARP 2, you may call up your servicer to get that information. There have been times the Fannie Mae or Freddie Mac loan look-up too is not accurate.
# 2 You must be current on your mortgage
You cannot be late on your mortgage or be in foreclosure to qualify. This program is designed to help those that have kept their mortgage current but are unable to refinance due to the negative equity of their home or investment property. You are automatically disqualified from HARP 2 if you are currently late. however, if have not been late in the last 6 months then you may qualify.
# 3 The loan must have been sold an transferred on or before may 31, 2009
Please note the word "transferred". This means even if your loan closed on or before May 31 st, 2009 and the lender that funded the mortgage did not sell or "transfer" to Fannie or Freddie until after the cutoff date, then you will not qualify.
# 4 You must be able to financially qualify
A myth I have been hearing lately is that if you meet the first 3 criteria you qualify. That is not true! HARP 2 income requirements are more liberal than a new loan, but you still have to show the ability to repay the new loan. The lender does no want to fund a loan they consider risky and will most likely default.
# 5 It must be a benefit to the borrower
This is were an experienced loan officer will shine. Many times you get a proposal in which the rate and the payment sounds great and is exactly what you are looking for. You sign the paperwork and close the loan. As part of your plan you decide to sell the house within 2 years. At the time of selling your home you discover it would take 3 years of savings to realize the extra principle you added when you refinance using the HARP 2. For a short while you saved money on the monthly payments but ended up paying more when you sell . Some inexperienced loan officers are focused on the payment and the commission and may not realize the refinance is not the best for you. You need to ask the right questions.
How long will it take to realize the savings if I refinance into a HARP 2 loan?
What is my amortization schedule in 3 years, 5 years etc etc.
When will we be at the break even point where I can sell the home and get out bases on the current value?
If I decided to move and rent out my property, will the rental income be enough to cover the monthly payments on the new loan?
Is a short sale what I really need not a HARP 2 refinance?
These are very important question you should not only be asking your broker but yourself as well. The HARP 2 refinance program is great and will hope most homeowners and investors but its not always the solution.