GSE Lenders Can Offer Cash Incentives to Spur HARP Refinancings

To entice more HARP refinancings, lenders may contribute up to $2,000 toward the borrower’s closing costs or other fees by reducing the loan amount, according to guidance issued by Fannie Mac and Freddie Mac.

Lenders have been providing this type of incentive on other refinancings. With the approval of the GSEs and the Federal Housing Finance Agency, these incentives will become available to Home Affordable Refinance Program applicants starting April 30.

“A lender may provide a contribution towards the payoff of the mortgage being refinanced, provided it does not exceed $2,000 and repayment is not required,” according to a Jan. 31 Freddie Mac bulletin.

This contribution must be “reflected on the HUD-1 settlement statement as a lender credit,” Fannie says in its seller guide.

This contribution comes solely for the lender and the principal amount of the existing GSE loan (before refinancing) must be paid off in full.

Industry groups asked for this clarification so lenders could reach more HARP candidates that have been reluctant to refinance because of the costs.

If the $2,000 is not enough, lenders can also offer the borrower $500 in cash or in the form of a gift card. This cash gift is not recorded on the HUD-1 settlement sheet.

Lenders have completed over 790,000 HARP refinancings during the first 10 months of 2012, according to the latest FHFA data.