What is a HARP Mortgage?
Over the past few years, President Obama and Congress have advocated and signed into law new bills to enable homeowners who are currently “underwater” on their mortgage to refinance to today’s historically low mortgage rates. A mortgage is considered underwater when the loan amount is greater than the current appraisal value of the home. The intention of this program is to help stabilize the finances of homeowners in America, which will hopefully prevent more foreclosures, improve discretionary spending, and boost the US economy.
This program is called HARP, the Home Affordable Refinance Program and is limited to mortgages currently held by two Government Sponsored Enterprises (GSEs), Fannie Mae & Freddie Mac. There have been two versions of HARP – the first which was originally launched in March 2009 commonly referred in the industry as HARP 1.0, and a second version which was recently passed into law at the end of December, 2011, commonly referred to as HARP 2.0. The requirements to qualify to a HARP refinance mortgage are significantly relaxed with the HARP 2.0 update.
The program was originally designed to enable an estimated 5 million underwater homeowners refinance to today’s record low mortgage rates, and therefore reduce their monthly mortgage payment. Some industry experts believe the number of at-risk mortgages is closer to 8-9 million homes. However, as of 8/31/11, only 894,000 borrowers had refinanced through HARP. Given these relatively low results, President Obama announced a major update to the HARP program on 10/25/11 with the hope of significantly expanding its reach to more homeowners.
The first version of HARP had limitations for many homeowners. The first version, referred to as HARP 1.0, was limited to a maximum loan-to-value (LTV) ratios of 125%. This requirement prevented many homeowners from securing a HARP mortgage, especially those who live in markets that experienced steep declines in home values. The expanded HARP 2.0 program relaxed several requirements with the main one being the complete elimination of an LTV cap. This is a very significant benefit to homeowners who are deeply underwater on their mortgage.
Requirements to qualify for a HARP refinance:
There are many detailed requirements to qualify for a HARP mortgage. If you are currently underwater on your mortgage, you may very well qualify, and could benefit from a significantly lower mortgage rate in today’s historically low interest rate environment. Many homeowners are refinancing from a 5%-6% mortgage rate down to a 3.5% or 4.5% rate. If you are underwater on your mortgage, and are in a similar situation with your mortgage rate, I recommend you get in touch with your preferred lender very soon to see if you qualify. They can help you go through a detailed assessment.
For a quick, general understanding of the HARP program requirements, here are a few of the high-level eligibility guidelines that you will need in order to qualify:
- The mortgage on your property must be currently be owned or guaranteed by Fannie Mae or Freddie Mac.
- The mortgage loan being refinanced needs to have been originally funded before May 31, 2009.
- At the time you apply for the loan, you must be current on your mortgage payments. You can have one 30-day late payment in the past 12 months, but none within the past 6 months.
- The refinancing of your mortgage needs to demonstrate that it improves the long-term affordability or stability of your loan.
- There is now no loan-to-value maximum in the new HARP program, for fixed-rate mortgages. This is the most significant change of HARP 2.0. Under previous versions of HARP, the LTV could not exceed 125%.
And here is a more exhaustive list of the requirements for HARP program. However, I still recommend you contact your preferred lender to see if you will qualify since they will have all the requirements:
| HARP 2.0 Requirements | Requirement | Additional Considerations |
| 1) Loan Ownership | Needs to be currently owned or guaranteed by Fannie Mae or Freddie Mac | |
| 2) Date of Original Loan | Loan being refinanced needs to have been originally funded before May 31, 2009 | |
| 3) One Time Eligibility | Can not have completed another HARP refinance since June 1, 2009 | |
| 4) Loan Performance | Can not have made a late payment in the last 6 months | Can not have made more than one late payment in the last 12 months |
| 5) Conforming Loan Limits | Loan must be under the $417,000 Fannie Mae or Freddie Mac “Conforming” loan limit | However, in high cost areas, defined by FHFA, the maximum amount can reach to $625,000 |
| 6) Loan to Value Ratio (LTV) | With HARP 2.0, the Loan to Value Ratio (LTV) is uncapped. | However, mortgages with LTV’s exceeding 105.01% can only be fully amortizing fixed rate mortgages with a term of 30 years or less |
| 7) Improves Affordability/Stability | a) Movement from an interest-only loan to a fully amortizing loan to provide amortization of principal and build equityb) Movement from an ARM to a Fixed Rate Mortgage (FRM) to eliminate payment shock | c) Movement from an ARM to a new ARM with an initial period of 5 years or more, or = to or > that of existing mortgage (to eliminate payment shock)d) Movement from a 30 FRM to 15, 20 or 25 year FRM to accelerate amortization and build equity |
President Obama is urging Americans to take advantage of this program. The decision to refinance under the HARP program is a no-brainer if: a) you plan to be in your home for several more years and the cost to refinance is less than the mortgage interest savings during that time period , b) you are currently have a mortgage rate that is significantly above the current market rates, and c) you are “underwater” on your mortgage. More Americans need to be aware of this program, so please share this post with friends and family members who you think might be a candidate for a HARP mortgage. I hope this helps.
{ 2 comments… read them below or add one }
When we bought our house in 2004, our timing was horrible… Rates had been in the 4-5 range but jumped into the 6s for a couple months before going back down. Ours was in the 6s…
Last summer we gave up in selling our house to downsize and looked into refinancing it instead. We were denied. We received a letter from our mortgage company (SunTrust) that encouraged us to try again, so we did. Our new mortgage is about 1.5% lower than our old one (and adds 6 years back to the life of the loan).
“All-in” (principle, interest, escrow, PMI), our total payment dropped almost 20%!
Great article, Tom! For those unaware or uncertain about the HARP programs, you provide an easy to understand guide for consumers. Also, under the HARP program, lenders often have their own “guidelines” as far as what they will or won’t refinance. If a consumer finds a lender will not handle their business, he or she should try another lender. Thanks again!