New loan rules will allow more homeowners to refinance mortgages

The Obama administration eased eligibility rules Wednesday for its Home Affordable Refinance program, lifting the maximum loan-to-value ratio to 125% from 105%. The shift, which regulators had hinted was coming, is aimed at making refinancing available to more people whose homes are worth less than their mortgages. HARP is open to homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac, the mortgage finance giants now under government control. It covers first mortgages only. The refinance program, launched this year, has gotten off to a slow start, in part because the maximum 105% loan-to-value ratio was too low to include many homes that have fallen sharply in value. The new 125% maximum means an eligible homeowner with a $375,000 mortgage can refinance if his or her house is worth at least $300,000. But the borrower still must be able to afford the new loan. Income requirements are an increasing problem as unemployment soars and many workers are dealt pay cuts.

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