The Home Affordable Refinance Program (HARP) is a federal program of the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

, set up by the

Federal Housing Finance Agency The Federal Housing Finance Agency (FHFA) is an independent federal agency in the United States created as the successor regulatory agency of the Federal Housing Finance Board (FHFB), the Office of Federal Housing Enterprise Oversight (OFHEO), ...

in March 2009, to help

underwater An underwater environment is a environment of, and immersed in, liquid water in a natural or artificial feature (called a Water, body of water), such as an ocean, sea, lake, pond, reservoir, river, canal, or aquifer. Some characteristics of the ...

and near-underwater homeowners refinance their

mortgages A mortgage loan or simply mortgage (), in civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pur ...

. Unlike the

Home Affordable Modification Program The Making Home Affordable program of the United States Treasury was launched in 2009 as part of the Troubled Asset Relief Program. The main activity under MHA is the Home Affordable Modification Program. Other programs under MHA include: * Princ ...

(HAMP), which assists homeowners who are in danger of

foreclosure Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has Default (finance), stopped making payments to the lender by forcing the sale of the asset used as the Collateral (finance), coll ...

, this program benefits homeowners whose mortgage payments are current, but who cannot refinance due to dropping home prices in the wake of the U.S. housing market correction.

Background

Millions of borrowers found themselves in a difficult predicament after the U.S. housing bubble burst in 2008. As inventories soared nationwide, home prices plummeted. Many new homeowners saw the value of their homes drop below the balance of their mortgages, or nearly so. Later, these same homeowners were prevented from taking advantage of lower

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

s through refinancing, since banks traditionally require a

loan-to-value ratio The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. In real estate, the term is commonly used by banks and building societies to represent the ratio of the first ...

(LTV) of 80% or less to qualify for refinancing without

private mortgage insurance Lenders mortgage insurance (LMI), also known as private mortgage insurance (PMI) in the US, is a type of insurance payable to a lender or to a trustee for a pool of securities that may be required when taking out a mortgage loan. Its purpose is t ...

(PMI). Take for example a house that was purchased for $160,000 but is now worth $100,000 due to the market decline. Further, assume the homeowner owes $120,000 on the mortgage. In this scenario, the loan-to-value ratio would be 120%, and if the homeowner chose to refinance, he would also have to pay for private mortgage insurance. If the homeowner were not already paying for PMI, the added cost could nullify much of the benefit of refinancing, so the homeowner could be effectively prohibited from refinancing.

Program

The Home Affordable Refinance Program (HARP) was created by the

in March 2009 to allow those with a loan-to-value ratio exceeding 80% to refinance without also paying for mortgage insurance. Originally, only those with an LTV of 105% could qualify. Later that same year, the program was expanded to include those with an LTV up to 125%. This meant that if someone owed $125,000 on a property that is currently worth $100,000, he would still be able to refinance and lock in a lower interest rate. In December 2011, the rule was changed yet again, creating what is referred to as "HARP 2.0"; there would no longer be any limit on

negative equity Negative equity is a deficit of owner's equity, occurring when the value of an asset used to secure a loan is less than the outstanding balance on the loan. In the United States, assets (particularly real estate, whose loans are mortgages) with ...

for mortgages up to 30 years – so even those owing more than 125% of their home value could refinance without PMI. Also, the program was expanded to accept homeowners with PMI on their loan. Finally, any new mortgage lender was guaranteed not to be held responsible for fraud committed on the original loan. This greatly expanded the willingness of lenders to participate in the program.

Qualifying criteria

Certain criteria must be met to qualify for HARP. While there may be additional criteria imposed by the

mortgage servicer A mortgage servicer is a company to which some borrowers pay their mortgage loan payments and which performs other services in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mo ...

, the government requirements are as follows: * The mortgage must be owned or guaranteed by

Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is an American publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons, Virginia.Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the New ...

. Many homeowners are unaware that their mortgages are linked to one of these organizations, since neither Freddie Mac nor Fannie Mae deals directly with the public. * The mortgage must have been acquired by Freddie Mac or Fannie Mae on or before May 31, 2009. * The homeowner must not have a previous HARP refinance of the mortgage, unless it is a Fannie Mae loan that was refinanced under HARP during March–May 2009. * The homeowner must be current on their mortgage payments, with no (30-day) late payments in the last six months and no more than one late payment in the last twelve months. * The current

(LTV) of the property must be greater than 80%. * The homeowner must benefit from the loan by either lower monthly payments or movement to a more stable product (such as going from an

adjustable-rate mortgage A variable-rate mortgage, adjustable-rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.Wie ...

(ARM) to a

fixed-rate mortgage A fixed-rate mortgage (FRM) is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float". As a result, payment amounts and the duration of ...

HARP 2.0 and PMI

Many people who purchased their home with a

down payment In accounting, a down payment (also called a deposit in British English) is an initial up-front partial payment for the purchase of expensive goods or services such as a car or a house. It is usually paid in cash or equivalent at the time of fin ...

of less than 20% of the purchase price were required to have

(PMI). This is common practice with

loans. Having PMI attached to a loan made that loan easier to sell on the Wall Street secondary market as a "whole loan". PMI hedged the risk brought by the high

by offering insurance against foreclosure for whoever owned the "whole loan". Although HARP 2.0 allows homeowners with PMI to apply through the Making Home Affordable Refinance Program, many homeowners have faced difficulty refinancing with their original lender. HARP requires the new loan to provide the same level of mortgage insurance coverage as the original loan. This can be difficult and time-consuming, especially in the case of lender-paid private mortgage insurance (LPMI). As a result, many lenders are reluctant to refinance a PMI mortgage. Fortunately, HARP 2.0 enables homeowners to go to any lender to refinance, so the mortgage holder is not stymied if the original bank is unwilling to pursue a HARP refinance.

Occupancy type

HARP 2.0 refinancing is allowed on all occupancy types: primary residence (owner-occupied), second home, or investment (rental) property. However, HARP 2.0 refinancing of investment properties by Fannie Mae and Freddie Mac has higher mortgage rates than for owner-occupied properties.

Appraisal waiver

Another feature of HARP is that applicants can forgo a home appraisal if a reliable automated valuation model is available in the area. This can save the borrower time and money, but is subject to the discretion of the

HARP 3.0

As part of the 2012 State of the Union Address, President Barack Obama referenced a plan to give "every responsible homeowner the chance to save about $3,000 a year on their mortgage". Within the mortgage industry, this plan is being referred to as HARP 3.0. The plan has not passed. HARP 3.0 is expected to expand HARP's eligibility requirements to homeowners with non-Fannie Mae and non-Freddie Mac mortgages, including homeowners with jumbo mortgages and Alt-A mortgages, those whose original mortgages were stated income, stated asset, or both.

Deadline

Although the HARP program was originally scheduled to end on December 31, 2016, the Federal Housing Agency announced in August 2016 that it would be extended though September 2017. The program was extended again on August 17, 2017 through December 2018.

References

External links

Making Home Affordable.gov

Fannie Mae loan lookup tool
Fannie Mae website.
Freddie Mac loan lookup tool
, Freddie Mac website. * http://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-FHFA-Director-at-Greenlining-Institute-22nd-Annual-Economic-Summit.aspx {{DEFAULTSORT:Home Affordable Refinance Program Banking in the United States United States housing bubble Mortgage industry of the United States Mortgage legislation