Homeowners who owe more on their home loan than their home is worth — also called being underwater in a loan — have a refinancing option that won’t be around for much longer.
Whether they had an adjustable rate mortgage that quickly escalated after one year, the financial collapse of the housing market in 2008 caused their home value to drop, or their home loan somehow went underwater, the Home Affordable Refinance Program, or HARP, has been there to help since 2009.
HARP expires at the end of 2016, when thousands of underwater and low-equity homeowners may find it more difficult to refinance their home loans. The program is run by the Federal Housing Finance Agency, or FHFA, and is meant to help struggling homeowners refinance their mortgages at lower interest rates so they can keep their homes.
HARP was launched in 2009 as home values dropped and more homeowners went underwater. The program was started to fend off calls for principal forgiveness on Fannie Mae and Freddie Mac loans.
Who qualifies for HARP
To qualify for HARP refinancing, homeowners must meet several criteria:
- Existing loans are backed by Fannie Mae or Freddie Mac.
- Homeowners aren’t late on mortgage payments: no delinquencies in the past six months and up to one delinquency in the past year.
- They can’t refinance otherwise because of home depreciation.
- Conventional loans originated before June 1, 2009.
- Unpaid principal balance is greater than 80 percent of the current property value.
- Remaining balance greater than $50,000.
- Remaining term greater than 10 years.
- Note rate 1.5 percent above the market rate.
The ideal HARP candidate can’t refinance their home loan elsewhere because they’re underwater and has a loan-to-value ratio of 90 percent or more, says Casey Fleming, a mortgage advisor and author of “The Loan Guide: How to Get the Best Possible Mortgage."
“The idea behind HARP loans is that although you might not otherwise qualify for a refinance,” Fleming says, “if you’ve proven that you are willing and able to pay your existing mortgage — by virtue of having made payments on time for at least the last year — then you will certainly find a way to pay for the same mortgage at a lower interest rate and payment.”
How much can you save?
Dropping the interest rate on the loan for a lower monthly mortgage payment is one way HARP makes refinancing cheaper. Borrowers can also refinance to a shorter loan term.
The typical HARP homeowner saves 27 percent per month, according to a coalition of HARP banking servicers.
The mortgage savings through HARP can be as much as $2,400 a year, according to the FHFA, which is hosting a webinar May 24 about the program.
Having 20 percent equity in the home being refinanced is a key component of HARP, says Staci Titsworth, regional manager for PNC Mortgage in Pittsburgh, PA. If borrowers didn’t need private mortgage insurance originally because they didn’t have 20 percent down, then they won’t need it with a HARP refinance, Titsworth says.
“That’s the draw,” she says. “The equity position is the key driver of HARP.”
For homeowners who needed PMI before a HARP refinance, they’ll still need to pay it afterward.
Borrowers concentrated in 10 states
More than 367,600 homeowners across the U.S. are eligible for HARP, according to the FHFA. Most are in 10 states: California, Florida, Georgia, Illinois, Maryland, Michigan, New Jersey, New York, Ohio and Pennsylvania.
FHFA started a social media campaign this year called #HARPNow to alert homeowners in those 10 states that they can refinance their mortgages before the program expires.
Homeowners can refinance with any mortgage lender. Older HARP rules required refinancing with the current lender.
HARP shouldn’t be confused with HAMP, the Home Affordable Modification Program assisting homeowners in danger of foreclosure. HARP is meant for people current on their monthly mortgage payments.
With home prices increasing in recent years, it may be easier to refinance a home loan now, Fleming says.
“Anybody who’s still underwater has been seeing their negative equity decrease for years now,” he says.
Will HARP really end?
Whether Congress will extend HARP is anyone’s guess. In an election year, however, it’s a political football that likely won’t be tossed around until after the election, Fleming says.
“When calmer heads prevail, they’re going to extend it to the rest of the homes that are under water,” he says.
HARP officials, however, are recommending refinancing now and not waiting until 2017 to see if Congress extends the program.