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Home Affordable Refinance Program

The Home Affordable Refinance Program (HARP) allows owners of underwater homes to refinance to today’s low interest rates. Refinancing is typically not possible for owners with little or negative equity. The key requirement for HARP eligibility is that the home loans must be owned by Fannie Mae or Freddie Mac.

The Federal Housing Finance Agency (FHFA) and Administration’s hopes for HARP is it will both stabilize the housing market and boost the overall economy by putting extra dollars in the pockets of consumers who are likely to spend them. The FHFA is conservator of Fannie Mae and Freddie Mac, and is the chief regulator of Fannie, Freddie, and the 14 housing-related GSEs and Federal Home Loan Banks.

Mortgage experts are optimistic about the new HARP. “Although there is still a good deal of uncertainty surrounding the specifics of how the expanded HARP program will be implemented at the individual lender level, the November 15 announcements from Fannie and Freddie do provide a source of encouragement for the equity challenged segment of the market,” said Peter Citera, vice president at Chicago Bancorp and mortgage education director at the Real Estate Institute.

Approximately 4 million Fannie and Freddie borrowers owe more on their mortgage than their homes are worth. Across the US, nearly 11 million are underwater, or about 22.5% of all outstanding loans, according to CoreLogic, a data provider to mortgage underwriters. About 2.4 million hold less than 5% equity in their homes.

 

HARP At a Glance

HARP has changed over time. In October 2011, the Obama Administration announced comprehensive rules for the new HARP, which people in the industry called “HARP 2.0.” In November, the Federal Housing Finance Agency (FHFA) expanded HARP and announced updated guidelines, which are discussed below. On March 19, the start of the automated loan approval systems expanded homeowner's choices in lenders.

HARP allows homeowners facing difficulties refinancing their mortgage through conventional methods to apply for a refinance of their mortgage. A homeowner that is current with their monthly payments but unable to refinance due to a drop in the value is the typical prime candidate for the HARP program. The ultimate goal is to allow a homeowner to do a mortgage refinance for a lower interest rate and overall monthly payment. Here are the general eligibility guidelines for HARP:

  • There is no loan-to-value cap in the new HARP, for fixed-rate loans. This is the most significant change of HARP 2.0. Under previous versions of HARP, the LTV could not exceed 125%.
    March 2012 Update: Perhaps the biggest news in the November 2011 announcement by Fannie Mae and Freddie Mac was that HARP 2.0 would allow for unlimited LTV loans. This went into effect in December 2011 for loans processed by the original lender through the manual underwriting systems. With the opening of the automated systems in March 19th the expectation was that lenders would apply these standards to all new HARP loan applications. The big surprise, and disappointment for many, is that some of the lenders have issued stricter guidelines that limit the LTV to the previous HARP 1.0 125% level or lower. Two examples are Quicken Loans and New Penn.
  • The loan on your property is owned or guaranteed by Fannie Mae or Freddie Mac (see Fannie or Freddie loan? table below).
  • At the time you apply, you are current on your mortgage payments. You can have one 30-day late payment in the past 12 months, but none within the past six months.
  • You have a reasonable ability to pay the new mortgage payments. Editor’s note: Fannie Mae removed the "reasonable ability to pay" clause.
  • The refinance improves the long
     
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