Qualified homeowners are getting an extra year to reduce their mortgage payments through the federal HARP and HAMP initiatives, now that the deadlines for both programs have been extended by the Federal Housing Finance Agency (FHFA).

Originally due to expire at the end of this year, both programs have been extended through 2016, FHFA Director Mel Watt announced last week. The two programs enabled financially challenged homeowners to save money by either refinancing or modifying the terms of home mortgages backed by Fannie Mae or Freddie Mac.

"Extending HAMP and HARP through the end of 2016 will provide real relief for borrowers who continue to face challenges either paying their mortgage or refinancing their loan," Watt said, in announcing the extensions. He acknowledged that while participation in the programs has been falling, in part because many of those eligible have already taken advantage of them, lenders and servicers continue to approve new applications for both.

3.3 million refinanced to date

HARP, the Home Affordable Refinance Program, has been the more successful of the two initiatives, enabling some 3.3 million homeowners to refinance their mortgages to a lower interest rate since the program began in 2009. The program allows homeowners to refinance their mortgages to a lower rate, shorter term or both when they otherwise would not be able to due to a lack of home equity or being underwater on the loan.

HAMP, the Home Affordable Modification Program, on the other hand, is for homeowners who are in financial difficulty but cannot qualify for a refinance due, usually due to credit or income problems. It authorizes servicers to modify the terms of the mortgage and temporarily reduce the monthly payments, for up to five years. Approximately 1 million borrowers are currently benefitting from the program.

The typical participant reduces their mortgage payment by $187 a month through HARP refinancing, according to government figures, while HAMP produces an average reduction of $540 a month. The HARP average is reduced by the fact that many borrowers opt to refinance to a shorter loan term, such as to a 15-year mortgage out of a 30-year one, which can raise their monthly payments while saving money over the long term.

600,000 still believed eligible

The FHFA estimates there are still more than 600,000 homeowners who are eligible for a HARP refinance who have yet to do so, with roughly half of them concentrated in just six states. Florida alone is believed to have more than 80,000 eligible homeowners, while Illinois, Michigan, Ohio and each have in excess of 40,000. Home prices in California have recovered to the point that only 30,000 are eligible there, despite the size of the state's population and the fact it was one of the states hit hardest by the housing downturn.

Both programs have fallen short of their initial projections, which called for the two programs to assist a total of 7-9 million homeowners combined when they were launched in 2009. Both were dogged with implementation problems during their early years, though changes to eligibility rules and other guidelines helped boost participation as time went on.

The two programs have been extended several times in recent years, after having been originally set to expire at the end of 2013. Watts said this will be the last extension for HAMP and that it will come to an end after next year, and that it could be the last extension for HARP as well.

Streamlined refi product in the works?

However, he said the FHFA will be looking at their experience with HARP over the next year and a half with an eye toward possibly establishing a streamlined refinance option for Fannie Mae and Freddie Mac loans, which would provide a similar benefit.

To be eligible for HARP, homeowners must be current on their mortgage payments and have a mortgage that is backed by either Fannie Mae or Freddie Mac (streamlined refinance options are available for FHA and VA borrowers, but those are different programs). They also must either be in negative equity (underwater) on their mortgage or have no more than 20 percent positive equity. They must meet income and credit qualification requirements as well.

HAMP is for homeowners who are in immediate financial difficulty and are on the verge of or may have begun to miss mortgage payments. It is not limited to only Fannie Mae or Freddie Mac mortgages. Borrowers should contact their mortgage servicer to assess their eligibility.

Published on September 3, 2008