In 2009, the government rolled out the Home Affordable Refinance Program (HARP). The program is meant to help those who are underwater on their mortgages refinance into a more affordable monthly payment.
Unfortunately, some of the requirements for participation in the program limited its effectiveness.
In order to expand the program so that it reaches more homeowners, some changes have recently been made to HARP.
Main Changes to HARP
There are a few main changes to HARP that widen the eligibility requirements. The main changes should help borrowers who weren’t eligible in the past find themselves able to refinance to today’s record low interest rates, thereby reducing their monthly payments.
Some of the major changes include:
- Cut fees to borrowers: In some cases, fees charged to borrowers who wanted to refinance to shorter-term loans were higher than expected. The changes to the program cut those fees, making it more affordable for those who want shorter-term mortgages to refinance.
- 125% cap removed: Before, if a borrower owed more than 125% of the value of the home, he or she was ineligible for HARP. Now, though, that cap has been removed so that people who are underwater by more can take advantage of HARP (as long as they meet other requirements.)
- Mortgage payment delinquency: Instead of having never missed payments on the mortgage, it is allowable to refinance under HARP with only one missed payment in the last 12 months, as long as there have been no missed payments in the last six months.
- Warranty risk: For lenders, some changes have been made in order to induce them to be more favorable toward offering refinancing under HARP. Freddie Mac and Fannie Mae will clear banks from the warranty risk and rep liability that come with marketability, condition, and valuation of the underlying property (unless the lender gets a new appraisal for the HARP refinance).
- Program extension: The HARP program has been extended through December 21, 2013, so borrowers have time to meet eligibility requirements with regard to payments.
As you might expect, though, there are still some eligibility requirements when it comes to HARP.
First of all, your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac. This situation must be in effect on or before May 31, 2009.
Additionally, you must have a loan-to-value ratio of at least 80% in order to qualify for HARP. If you have a lower LTV, you won’t qualify, and you will have to seek refinancing help through other means.
Realize, too, that if you have already used HARP to refinance a mortgage, you won’t be eligible for another loan, even with the new eligibility requirements.
Freddie Mac and Fannie Mae have released guidance to lenders on the HARP changes, and these can be helpful as you determine whether or not the program is likely to work for you.
Applying for a HARP Loan
If you decide that you want to refinance your mortgage loan, and you are having trouble gaining approval with your lender, you might want to check into HARP.
Your first step is to verify that your mortgage is guaranteed or serviced by Fannie or Freddie. Next, find out from your lender whether or not they are willing to refinance under HARP.
As long as your LTV is more than 80%, and as long as you have been making payments, you should be able to qualify.
This can be helpful, since you will be able refinance to a lower interest rate — and even possibly refinance to a shorter-term mortgage.
This will help you build equity faster, and reduce the amount you are underwater on your mortgage.
You will pay less in interest over time, saving money on your mortgage, and improving your financial situation.