Over the past few years, President Barack Obama and Congress have enacted laws to enable “underwater” homeowners to refinance to today’s historically low mortgage rates. But it’s a safe bet that many homeowners who qualify aren’t even aware of it.
A mortgage is considered underwater when the loan amount is greater than the current appraisal value of the home. The intent of this program is to help stabilize homeowners’ finances, which will hopefully prevent more foreclosures, improve discretionary spending, and boost the economy.
This program is called HARP, the Homeowners Affordable Refinance Program and is limited to mortgages currently held by Fannie Mae and Freddie Mac. There have been two versions of HARP – the first, originally launched in March 2009 and commonly called HARP 1.0, and a second version passed in December 2011, called HARP 2.0.
The requirements to qualify for a HARP refinance mortgage are significantly relaxed with the HARP 2.0 update.
The program was originally designed to help an estimated 5 million underwater homeowners to refinance to today’s rates and significantly reduce their monthly payment. Some industry experts believe the number of at-risk mortgages is closer to 8 million to9 million homes. However, as of Aug. 31, only 894,000 borrowers had refinanced through HARP.
Given these relatively low results, President Obama announced on Oct. 25 a major update to the HARP program with the hope of significantly expanding its reach to more homeowners. The first version of HARP had limitations for many homeowners. For example, the original HARP 1.0 was limited to loan-to-value (LTV) ratios between 80 percent and 125 percent. 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, the main one being the complete elimination of an LTV cap.
If you are underwater on your mortgage, you may very well qualify for a HARP mortgage, and could benefit from a significantly lower mortgage rate in today’s historically low interest rate environment. Many homeowners are refinancing from a 5 percent-6 percent mortgage rate down to a 4 percent or 4.5 percent rate.
For a quick, general understanding of the HARP program requirements, here are a few of the high-level eligibility guidelines:
• Your mortgage 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 June 1, 2009.
• 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.
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 currently have a mortgage rate that is significantly above the current market rates, and c) you are “underwater” on your mortgage.
If these apply to you, 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.
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.
Tom Reddin, former president of Charlotte-based LendingTree, writes an occasional column for MoneyWise about mortgages and home ownership, and publishes a blog at MortgageRates.us. He runs Red Dog Ventures, a venture capital and advisory firm for early stage digital companies.
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