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.
Eric J. Nisall - DollarVersity says
I have already inquired with my mortgage company since I heard the program was going to start being offered on December 1. Unfortunately, as with other things the government makes a big deal about, it’s not ready on time. I was told that the 125% LTV cap was still in place, and that the government had not finalized all of the details, but the final rules and policies are expected to be sent down to the banks by the 2nd week of January 2012. Guess I’ll be waiting a little longer to try the process.
Brad Moore says
I would say to NOT HOLD YOUR BREATH ON THIS ONE. Before these changes you mentioned, Miranda, I was working as a credit counselor for about 3 years. For part of that time, I was counseling with homeowners and helping them with HARP (and also HAMP). We also did follow-ups where we telephoned homeowners to see if they were able to get help from HAMP. I would say that, no more than 5% were actually able to be helped by these programs. The programs held out hope, then the homeowners walked through the process, but IT SELDOM WORKED OUT.
I remember talking to my friend Bob, a mortgage broker, and summed it up saying, “Don’t ever be late on a mortgage payment.” Grab a side job, sell the house, start blogging….but DON’T BE LATE.
Sarah - Editor @ Theoffice-UK says
I think a home refinance can be a great tool to help ease the burden than anticipating on declining home values.
ChrisCD - Jumbo CD Inv says
I’m holding out hope. I don’t think our loan is guaranteed. So the bank would have to be willing to match the guidelines. Not very hopeful in that regard. On the other hand, rates will probably be low for a while, so time is a little on our side.
In response to Brad Moore, it’s important to understand that HARP is not equal to HAMP. HARP is simply a refinance program and lacks the bureaucratic morass that many people experience with HAMP. If you meet the eligibility criteria, it’s very straightforward to get a HARP loan done. Another note: though the HARP program allows for a 30-day late in the last 12 months, don’t be surprised if you run into more restrictive lending criteria when actually applying for the program. Banks often add their own more restrictive lending criteria.