HARP Ends This Year, But Underwater Homeowners Still Have Options

Aaron crowe
Written by
Aaron Crowe
Read Time: 5 minutes

A federal program set up after the financial crisis of 2008 to help underwater and near-underwater homeowners refinance their mortgages due to falling home prices is ending.

The Home Affordable Refinance Program, or HARP, expires Dec. 31, 2018. It was set up by the Federal Housing Finance Agency, or FHFA, in March 2009 to help people who are current on their mortgage payments, but can’t refinance their mortgage because home prices have fallen enough so that they owe more than the home is worth.

HARP differs from the Home Affordable Modification Program, or HAMP, which helps homeowners who are in danger of foreclosure and is no longer taking new applications.

Although HARP is ending, two similar programs are starting for homeowners who are underwater on their mortgages but want to refinance their home loan. They can also use the existing HARP program through the end of 2018.

Why HARP was created

Without HARP, homeowners couldn’t take advantage of lower interest rates through financing because banks usually require a loan-to-value ratio, or LTV, of 80 percent or less to qualify for refinancing without having to buy private mortgage insurance. An LTV of 100 percent means you own more than the house is worth. By adding the cost of PMI to a mortgage refinance, it could nullify the benefit or refinancing.

HARP allowed LTV of up to 125 percent, meaning a loan balance no more than 25 percent greater than the value of a home. That 125 percent LTV cap was later lifted in what was called HARP 2.0, meaning there was no longer a limit on how far underwater a mortgage had to be and still be able to be refinanced.

HARP was created in coordination with Fannie Mae and Freddie Mac, which own or guarantee mortgages, as a way to help homeowners with little home equity or negative equity refinance their mortgages. While the HARP program is ending, Fannie and Freddie have similar refinance programs to replace it (A separate program called a streamline refinance is available to FHA borrowers).

Almost 3.5 million homeowners have been assisted through HARP, and about 1 million of those have been underwater. As of October 2018, there were 49,000 HARP-eligible homeowners, according to the FHFA.

HARP doesn’t reduce the amount of principal owed, but reworks terms to get better interest rates, lower monthly payments or save on collective interest.

How to still get in on HARP

Some people may not know they qualify for HARP, or didn’t qualify under the original terms but do under revisions of the last few years. If you haven’t refinanced yet, you may qualify for HARP through these criteria:

  • Fannie/Freddie involved: Your mortgage must be guaranteed or owned by Fannie or Freddie and must have been originated on or before May 31, 2009. Look up links on their websites to see if they hold your loan.
  • Not previously refinanced: HARP refinancing is only allowed once. The exceptions are Fannie Mae loans that were refinanced between March and May of 2009.
  • Current on payments: No late payments within the previous six months and only one late payment allowed within 12 months. Missed payments aren’t allowed.
  • LTV: Your current loan-to-value ratio must be greater than 80 percent. LTVs over 100 percent are common.
  • Ability to pay: You must demonstrate the ability to repay the loan under the new terms. HARP doesn’t have a limit on the debt-to-income ratio, but lenders may decide you don’t have enough income or have too much debt.

Differences of new programs

Home prices haven’t dropped as much as they did during the Great Recession, but some areas of the country have lower home values for people who bought at a high point in the market or have seen a sudden drop in their home’s value. Even with great credit, refinancing such a mortgage can be difficult.

The new programs from Fannie and Freddie help. Fannie’s program is called the high LTV refinance option, and Freddie’s is called Enhanced Relief Refinance.

While HARP was created as a one-time fix for homeowners, with a program expiration date, the new programs are permanent refinance solutions for eligible borrowers and there’s no limit to how many times people can use it.

HARP required mortgage originations before May 31, 2009. The new programs are for mortgages that were originated on or after Oct. 1, 2017.

The loan age requirement has changed. HARP didn’t have one and the new programs require loans to be at least 15 months old before they’re eligible for refinancing. This extra time can allow lenders to get a better picture of a borrower’s payment history and can prevent loan churning.

It’s also key to remember that just like HARP, the new programs aren’t meant for people who are behind on their mortgage payments.

“Somebody’s who’s current is not going to be at risk of losing their home,” says Terri Merlino, chief credit officer at Freddie Mac in McLean, VA.

By getting the chance to refinance their mortgage at a lower rate, borrowers should be able to save money and more easily afford to stay in their homes. “This is not intended to help someone who has payment problems,” Merlino says.

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