If you find yourself unable to refinance your mortgage because your home is falling in value, then there is a federal government program designed to assist you: the Home Affordable Refinance Program (HARP).
Freddie Mac and Fannie Mae are federal government-sponsored enterprises (GSEs) that buy mortgages from lenders. By selling mortgages to these two GSEs, lenders can replenish their funds to lend money to new borrowers, increasing the overall amount of money available in the market for new home purchases. If your mortgage has been sold to Freddie Mac or Fannie Mae and you meet the other eligibility requirements, you may be able to qualify for a HARP refinancing from your existing lender or a new lender.
HARP, also known as the Obama Refinance Program, was created by the federal government in 2009 after the collapse in home prices caused by the 2007-08 great financial crisis. The HARP program is designed for underwater homeowners whose mortgage payments are current but who cannot refinance due to the decreasing value of their home. Underwater refers to a situation in which a homeowner has negative equity in their home, meaning they owe as much or more than their home is currently worth. Eligible home owners can save up to $2,400 a year with HARP, according to the Federal Housing Finance Agency (FHFA) the government agency that administers the program.
HARP has undergone significant changes since it launched in 2009. It now requires less documentation and has simpler guidelines, all designed to approve more loans. To date, it has helped more than 3.4 million home owners.
The FHFA recently launched 2 new programs for people with more recent mortgages: the High Loan-to-Value Refinance Option for loans owned by Fannie Mae, and the Enhanced Relief Refinance program for loans owned by Freddie Mac.
In the meantime, the FHFA has extended the original HARP program to at least the end of 2018 and has estimated that more than 143,000 home owners around the United States are still eligible.
To Qualify for a HARP refinance, you must meet the following requirements:
- You must be current on your mortgage, with no payments made more than 30 days late in the last 6 months and a maximum of one payment made more than 30 days late in the past 12 months
- Your home must be your primary residence, a 1-unit second home, or a 1-unit to 4-unit investment property.
- Your current loan-to-value (LTV) ratio must be greater than 80%. In other words, you must hold less than 20% of the equity in your home.
- Your loan must have originated on or before May 31, 2009.
- Your loan must be owned by Freddie Mac or Fannie Mae. If you got your mortgage loan at a bank, credit union or mortgage company, it may be owned by Fannie Mae or Freddie Mac. Find out if your loan is owned by Freddie Mac by using its loan look-up tool or by calling 800-FREDDIE from 8 am to 8 pm Eastern Time (5 am to 5 pm Pacific Time). Find out if your loan is owned by Fannie Mae by using its loan look-up tool or by calling 800-7FANNIE from 8 am to 8 pm Eastern Time.
Thanks to recent amendments to the requirements, home owners who were previously rejected may apply again. This map shows the number of eligible home owners by state, metropolitan statistical area, country, and zip code.
The HARP program offers eligible home owners roughly the same advantages as a regular refinancing:
It enables the home owner to refinance their mortgage with a lower interest rate, given that today’s market rates are around 30% lower than in 2008.
The lower interest rates mean the home owner pays less on their monthly payments and over the life of the loan..
It offers the opportunity to switch from a 30-year loan to a 15-year loan, meaning the home owner builds equity more quickly and pays less to the bank in overall interest payments.
In some circumstances, HARP loan applicants can skip the appraisals and underwriting usually associated with refinancing – reducing closing costs.