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Struggling, underwater homeowners finally have a ray of hope.

Changes to the vastly-underused Home Affordable Refinance Program (HARP) could actually help as many as 1.6 million homeowners refinance into a more affordable mortgage. It won’t matter how far underwater you are: as long as you’re employed and current on your mortgage, you can qualify for a refinance. (Current means no late payments in the prior six months, and no more than one late in the past 12 months.) Most importantly, you’re not stuck trying to deal with your current lender. You can shop around.

So many government proposals to help homeowners have fallen so far short that it’s tempting to be cynical about yet another announcement of change. But look under the hood of these changes, and you’ll see that federal regulators are abolishing or at least reducing many of the obstacles that kept a lot of people from taking advantage of some of the lowest interest rates in generations. Estimates of how many homeowners could be helped have ranged from 800,000 to 1.6 million.

Granted, this kind of help should have come a long time ago, but it didn’t. Here’s what you need to know now:

Fannie and Freddie loans only. The HARP program covers only loans for primary residences sold to Fannie Mae and Freddie Mac, the taxpayer-owned mortgage investors that currently buy 90% of mortgages. The new, easier refinancing applies only to loans turned over to the agencies before June 2009. To find out if either agency owns your mortgage, check here at Fannie Mae and here at Freddie Mac. When radio host Bob McCormick and I were answering questions about the program this morning on KFWB, we heard from some investors who were hoping for help with rental properties, but that’s not who the HARP program was meant to serve. FHA, VA and USDA loans are not covered; neither are jumbo loans or “portfolio” loans–those kept by the lender, rather than sold to Fannie or Freddie. You’re also not eligible if you already refinanced under HARP.

LTV limit goes away. Under the current program, you can’t qualify for a refinance is you owe more than 125% of the value of your home (your “loan to value” or LTV), and many of the lenders who bothered wouldn’t make loans if you were over 105%. The new version eliminates the limit, although you still have to have less than 20% equity (if your loan is less than 80% of your home value, you won’t qualify for refinancing under this program).

The refi process is streamlined. Typically, requirements for appraisals and extensive underwriting will disappear. That’s because banks are going to be shielded from “buy back” risk from Fannie and Freddie. The threat that they might have to take the loans back has made lenders extra-careful about the loans they make–which means many loans aren’t being made at all. You’ll need to provide proof of employment or another regular source of income, but you won’t need to pay for an appraisal upfront or submit reams of documentation.

Mortgage insurers are on board. Another obstacle to refinancing is private mortgage insurers that have refused to transfer coverage. These insurers have promised to make transfers much easier under the new HARP rules.

Second mortgage lenders are on board. If you have a home equity loan or line of credit, you’ve typically needed to get that lender’s permission to refinance, a process known as re-subordination. Recalcitrant or overloaded second mortgage lenders have prevented plenty of refinancings in the past, but federal officials say the largest lenders have now agreed to automatically re-subordinate second mortgages under HARP.

Risk fees can be waived. Fannie and Freddie have agreed to waive the fees they were charging for riskier borrowers if those borrowers opted for a shorter-term mortgage than the one they currently have. Refinancing into a 15-year mortgage, then, from your current 30-year loan could save you some dough. If you’ve missed previous refinance opportunities because you were under water and you’re several years into your loan, you may find that your new payment isn’t significantly higher than your old one.

Final details of the changes are scheduled to be submitted to lenders by Nov. 15. If you think you may qualify, line up a chat with a HUD-approved housing counselor (find one here) and get ready to take advantage of a government program that could actually help you stay in your home.

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