The Home Affordable Refinance Program has evolved since its introduction in 2009. With some real estate pros calling for yet another iteration, we take a look back at how the program helps underwater homeowners
The Federal Reserve says American homes gained $2.3 trillion in value last year, a huge amount and evidence of growing home values. But while news on the real estate front is generally good, an estimated 9.3 million homes remain “deeply underwater” according to RealtyTrac, situations where property values are at least 25 percent less than the outstanding mortgage debt.
If you have an underwater home and if you want to refinance at today’s rates – then you need to look at the government’s Home Affordable Refinance Program.
However, one of the problems with HARP is that it’s somewhat of a moving target. The requirements have evolved, and one result is that many potentially qualified borrowers do not realize the program is now open to them.
The basic idea behind the 2009 version of HARP – what’s generally known as HARP 1.0 – was to assist borrowers with good payment histories who found they could not refinance because falling home values left them without equity.
HARP was open to borrowers with loans owned by Fannie Mae and Freddie Mac. The loans had to be originated before May 31, 2009, and the borrower had to have a good payment history in the past 12 months.
Another condition was this: The current loan-to-value ratio had to be at least 125 percent, meaning if the house was worth $200,000 the borrower could not have a first loan of more than $250,000. (Originally, the required LTV was 105% but this was changed in July 2009.)
The early LTV provisions helped some people but essentially made the program off limits in hard-hit foreclosure centers in California, Florida, Nevada, Arizona and parts of the Rust Belt. In those areas many borrowers had mortgage balances that greatly exceeded the value of their homes and could not qualify for assistance under HARP.
HARP 1.0 not only had LTV problems, it also included requirements that made lenders nervous, especially rules that made them responsible for underwriting errors. As a result, HARP 2.0 was introduced in October 2011, a revision with several important changes.
First, the 125 percent LTV was dropped so that deeply underwater borrowers can get help. Second, borrowers can refinance second homes and investment properties with one-to-four units. Third, borrowers no longer have to work with their existing lender – they can shop around for a HARP refinance.
Lenders also got some goodies to encourage participation: In many cases, automated – and cheaper – appraisals can be used to refinance old loans. Fannie Mae and Freddie Mac will waive “certain representations and warranties” made by lenders, meaning lenders no longer will have liabilities for original loans once refinanced. Lastly, a number of fees and charges were reduced.
There’s no doubt that HARP 2.0 offers benefits to a much larger number of homeowners, but can the program be further improved? There are, after all, more than 9 million homeowners who remain deeply underwater.
One approach is the Responsible Homeowner Refinancing Act of 2013 (S. 249), broadly known as HARP 3.0. If passed, it would lower HARP fees and costs, reduce the need for appraisals even further, and ease underwriting standards. The White House also has proposed a “better bargain” for homeowners that would streamline refinancing and lower closing costs.
HARP 2.0 will remain in place through at least December 31, 2015. For millions of homeowners it may well represent the best path to lower monthly mortgage costs, and certainly it’s worth asking lenders for more information. Meanwhile, keep on the alert for HARP 3.0 – it could make a good program even better.
© CTW Features