A colleague of mine recently mentioned that she had received a letter from her bank saying she was eligible for HARP refinancing. Now, even as a seasoned real estate professional, she had questions as to what HARP was, why she was now eligible for it, and if it was a program even worth considering. I went back in my brain and pulled out what I remembered from the HARP program when it was implemented in 2009 and did some research on some of the new developments with the program–and what I found is worth sharing with you!
Even if you were able to successfully avert foreclosure and weathered the worst of the 2006 housing crisis unscathed, HARP refinancing is something you should be thinking about because it could benefit you. If you were eligible to receive a new, more affordable and stable mortgage, would you take it? If you could lower your monthly payments and extend the term of your loan at a lower interest rate, would you do it? Could you make those extra monthly savings now go further for you in the future? Most likely, that's a "Yes, yes, and yes!".
When the U.S. housing bubble burst in 2006, millions of homeowners found themselves underwater as the values of their homes dropped below or nearly below the value of their mortgages. With soaring inventories and plummeting home prices, new homeowners found themselves paying mortgages worth more than their homes. The government has since put together programs to help homeowners refinance their mortgages and keep their heads above water, and HARP is one of them. And according to the HARP website, a whopping 9 out 10 homeowners fail to take advantage of this program. Don't be one of them!
The Home Affordable Refinance Program, now HARP 2.0, is a federal program set up by the Federal Housing Finance Agency (FHFA) aimed at assisting homeowners whose mortgage payments are current but who owe more than their home is currently worth and have been unable to refinance due to dropping home prices. Unable to refinance, these homeowners have lost the opportunity to take advantage of lower interest rates and have been stuck with high monthly mortgage payments. Whether it's your primary residence (owner occupied), your second home, or an investment (rental) property, HARP gives you a chance to refinance your home and lock in a lower interest rate now. (Note that HARP refinancing of investment properties by Fannie Mae and Freddie Mac will have higher mortgage rates than for owner-occupied properties).
Most banks traditionally require a loan-to-value ratio (LTV) of 80% or less to qualify for refinancing without many private mortgage insurance (PMI). Through HARP, homeowners with an LTV exceeding 80% can refinance without also paying for mortgage insurance. Even homes with negative equity of LTVs up to 125% qualify for the program. That's a big deal!
Let's take an example. Say you purchased a home for $160,000 but according to the market, it's now only worth $100,000 and you still owe $120,000 on the mortgage. In this case, the LTV would be 120%. If you chose to refinance, you would also have to pay for PMI, the added cost of which would probably just cancel out the benefit of refinancing. In the end, you would basically be left without any refinancing options.
With HARP 2.0, the program has been expanded to include homeowners with PMI on their loan. HARP guaranteed any new mortgage lenders that they wouldn't be held responsible for fraud committed on the original loan, which made more lenders willing to participate in the program. However, homeowners have faced difficulty refinancing their PMI mortgage with their original lender as HARP requires the new loan to provide the same level of mortgage level insurance coverage as the original loan. To prevent mortgage holders becoming thwarted by original lenders unwilling to puruse a HARP refinance, the HARP program has been revised to enable homeowners to go to any lender for refinancing. So there are options, and if there's a will there's a way!
Another added benefit of HARP is that you can forgo a home appraisal if a reliable automated valuation model (AVM) is available in the area. Using an automated valuator can save you time and money, but in the end it's ultimately at the discretion of your mortgage servicer to accept.
In an effort to reach more homeowners, Fannie Mae and Freddie Mac have also changed their respective mortgage guidelines to be simpler and include fewer documentation requirements. Overall, the HARP 2.0 guidelines are designed to approve more loans. So if you were turned down for the HARP program in the past, try applying again as you may now meet the requirements.
You may be eligible for HARP if you meet the following criteria:
- The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae. (Check your potential eligibility for HARP here and here)
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
(Note that not all mortgage servicers participate in HARP, so ask the company to which you make your mortgage payments if they do. If they do, contact Freddie Mac or Fannie Mae for help in determining whether you may be eligible for HARP.)
The HARP program ends on December 31, 2015. There are currently talks in Congress for a HARP 3, sometimes referred to as "#MyRefi" or "A Better Bargain for Homeowners." However, with the government shutdown and the glacial pace at which Congress tends to operate, it's your call whether or not to wait for what may or may not come through the political pipelines. There is a HARP program potentially available to you now–it's up to you to take advantage of it. After all, it is your money! And what determines if HARP is worth pursuing is what you could do with the extra cash you save each month. Could you use it to pay off other bills? Could you invest it? I'm sure your imagination has a few ideas! But to make that a reality, think about it, do some research, make a few phone calls, and if you have any questions, we're always here to help!
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