It’s still difficult to afford a home despite low interest rates and a recovering economic environment due stiff lending standards by banks. Add on the fact that many home values have still not fully recovered from pre-crisis levels, and it’s easy to see why help is needed. Owners of these homes usually cannot qualify for traditional refinancing. The HARP ( Home Affordable Refinance Program) was introduced to allow these owners to refinance their homes after the housing market collapsed in 2006-2007.
HARP Qualifications
1) The mortgage firstly must be owned by Freddie Mac or Fannie Mae. If the mortgage was not sold to either Freddie Mac or Fannie Mae before 31st May 2009, it won’t qualify for refinancing.
2) The loan to value ratio at the time of refinancing must be above eighty percent.
3) The homeowner must show him or herself to be a responsible homeowner by making timely payments at least in the past twelve months prior to refinancing.
4) The mortgage cannot be refinanced under HARP twice unless the first refinancing came between March 2009 and May 2009 under Fannie Mae.
Benefits of HARP Over Conventional Loans
This type of refinance mortgage has many advantages over taking out conventional loans.
1) HARP loans can finance more than 105 percent of the value of the home e.g. negative equity. Those who have recently been subjected to decreases in income can apply for these loans.
2) Sometimes no appraisals are required for the loan.
3) No mortgage insurance is required for HARP loans.
4) A minimum credit score is not part of the equation for HARP either even though a source of income has to be shown.
5) If one has two homes, only the first residence is eligible. Also, the home has to be a one to four unit house.
HARP Program Gets Extended
The HARP was supposed to expire on 31st December 2013. However, seeing that more people could be benefited by this refinancing program, the FHFA, Federal Housing Finance Agency, decided to extend the deadline to 31 December, 2015. The idea is that the economic situation continues to improve for the next two and a half years until the HARP program is gradually decommissioned.
The rules remain almost the same for the latest HARP program. The main thing to know is there is no maximum limit on the loan to value ratio for those who decide to take up a fixed rate mortgage. For those who decide to take up an adjustable rate mortgage, the maximum LTV ratio is 105 percent.
Condominiums and investment properties are eligible under the new rules. Thus a vacation home, which was perhaps the primary residence before, will be covered by HARP under the new rules. The costs associated with refinancing will also be lower if the loan is being changed into one with a shorter term under HARP.
HARP Isn’t Fully Maximized Yet
In January 2013, the total count of borrowers who refinanced thanks to HARP was more than 2.2 million. The FHFA does hope that more owners will participate in the program. They are set to launch a nationwide campaign to spread the word about the extension and to encourage more people to join.
Considering that 2.2 million people have enrolled into HARP, the program could be counted as a success. However, when the Obama administration introduced this refinance mortgage program, they expected a 2.2 million count within 16 months, and not four years.
One of the reasons for the short fall is that plenty of mortgages were not owned by Freddie Mac or Fannie Mae between 2001 and 2007; currently 90 percent of mortgages are owned by them. Mortgages owned by the bank are not eligible for HARP. The new rules unfortunately do not change this.
HARP of course is not advantageous to the homeowner only. It is also advantageous to the lending institution as, due to the lower interest rate, chances of default due to being unable to pay a mortgage are decreased. Thus, will the extension of HARP help many others save their homes? Will the Obama administration be able to convince many troubled homeowners to participate in the program? Probably. But, it’s up to homeowners to take action.
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I actually just finished this process at the end of March for my rental property. The process was very smooth and much less complicated than a traditional refinance. For example, I did not pay or need an appraisal, the application process was very simple and completed by the bank on my behalf. At the end of the day, my “no-cost” refinance was able to drop 1.75% off of previous rate, leaving me with a new rate of 4.125%. Considering when I locked in the rate (end of February) this was very competitive for an investment property, only incurring a 50 basis point adjustment for the “investment” classification of the property.
All in all, a real win in my book! After not qualifying under the original variations of HARP, it was a big relief to finally be able to qualify. You can see more details of my refinance and the related process on my blog.
Wow, that is a home run especially since it’s more difficult to refinance a rental property vs a primary residence. Nice work!
Wow 2.2 million people is still quite a lot even if it did take longer than expected. I didn’t realize that this was set to expire at the end of this year. That’s interesting too that the program allows people to go into negative equity with financing up to 105%.
I just went through the process with BoFA on one property and currently going through the process with Quicken Loans on my other. Quicken Loans is much better to deal with and actually allows homeowners with an LTV of up to 200% (http://www.quickenloans.com/blog/harp-refiance-quicken-loans-200-homes).
Back in 2006 when I bought my first property it felt like all banks asked for was age, credit check and employer verification. The re-financing process has been much harder and comes with a lot of paper work when compared to 2006. However, with no appraisals the process is much quicker.
Go to this link to see if Fanny or Freddie own your loan. http://www.makinghomeaffordable.gov/tools/does-fannie-or-freddie-own-your-loan/Pages/default.aspx
I’m a fan of Quicken Loans as well, so I’m glad to hear it’s worked for you .
Very good article. We are currently looking for a new home with more rooms and bigger space for our children. Based on the information you provided, I think we can be qualified for the Extended HARP Program. Thank you for sharing the information!
No problem and good luck with the hunt!
Extending the HARP Program is a great news! More people should be informed and get qualified for the program.
My in laws were able to qualify for this program. It was great for them but unfortunately they still waste money on senseless things.
But hey, at least they have more disposable income when rates are low.
It’s good to hear that they have re-worked the qualifications and are seriously putting together an awareness campaign for consumers. Many are so disenchanted with their options regarding upside down mortgages that they give up. I’m going to share this article with my readers!
Disenchanted is a great word to describe what’s going on. Banks have begun sending loan mod offers I’m FedEx envelopes to get homeowner’s attentions bc homeowners have been just throwing such great offers in the bin.
I refinanced one of my homes using HARP 2 and it worked out very well. I didn’t think I would be able to qualify, so I never applied. Out of the blue, I got a call from my bank asking if I’d like a mortgage 2.5% lower with no closing costs. Now, I have a 20-year mortgage and a lower payment than my old 30-year.
2.5% lower is huge! Congrats!
I tried to refinance yesterday with Quicken Loan, but they told me it just doesn’t make sense. When you have a small balance, you are penalized with extra costs. I appreciated his honesty and will continue to make additional principle payments to have it paid off within roughly 4 years.
Probably not the normal situation, but I just locked in a HARP loan that will reduce my current high interest rate by 3%. I was in year 6 of a 30 year, but now I am getting a 15 year for virtually the same payment. In a nutshell…I just shaved off 9 1/2 years off of my Mortgage and will save nearly $100,000 total. Definitely worth the closing costs and fees for me anyway!