Making Home Affordable Refinancing — How Lenders May Determine Home Values

We now know one of the details of the Home Affordable Refinance Program (HARP) that wasn’t clear yesterday.

Since HARP loans are available to homeowners who owe between 80-105% of the current value of their home, a key component to determining who will qualify will be figuring out the home’s value.

The government’s loan modification plan, called the Home Affordable Modification Program (HAMP), spelled out how lenders would determine the value of a home for underwriting purposes. They can either use Fannie Mae or Freddie Mac’s automated valuation model (a computer program that crunches comparable sales and other info and spits out the value of a home), a broker price opinion, or BPO (an estimate of probable selling price based on comps or other factors) or the lender’s own internal AVM (as long as the lender is federally regulated and their AVM has been reviewed by the government; many big institutions use their own AVMs).

Fannie Mae yesterday released some more details (only loans backed by either Fannie or Freddie are eligible for the refi). Starting in April, lenders and mortgage brokers will have the option of using Fannie’s Desktop Underwriter to process HARP applications. The Desktop Underwriter is a tool that includes an AVM, as well as credit risk management tools. According to Fannie Mae’s Web site, the underwriter will tell the lender how accurate the valuation is, and if an appraisal is needed.

Fannie says that 1,600 lenders and 29,000 mortgage brokers use their underwriting software. It seems this will probably only apply to Fannie Mae-backed loans (I assume Freddie Mac has a similar process).

Like I said in yesterday’s post, checking the Zestimate and value range of your home on Zillow is a good starting point to see if you owe between 80-105% of the current value of your home.