UPDATE: As of Dec. 31, 2018, the HARP program is no longer accepting applications. If you are facing an underwater mortgage, where your mortgage balance is higher than the free market value of your home, you have a few options. If the difference is small, you can try to convince your lender to agree to a short sale. You could also consider renting out a room or moving to an apartment and renting the house. For your credit’s sake, try everything you can to avoid foreclosure.
What Is HARP?
The Home Affordable Refinance Program (HARP) was a federal initiative that gave homeowners with negative equity the chance to refinance. It was launched back in 2009 when the country was in the midst of the subprime mortgage crisis. From then until 2018, HARP helped millions of homeowners find their financial footing.
Through HARP, some borrowers were able to lower their mortgage rates or reduce the length of their loan terms. Others traded in mortgages with variable interest rates for fixed-rate mortgages, making managing monthly payments less challenging.
HARP offered relief to people who couldn’t qualify for conventional refinance loans. After the housing bubble burst, many homeowners saw their home prices drop dramatically. As a result, many Americans found themselves with mortgage loan balances that exceeded the value of their homes. Despite the controversy surrounding the program, HARP played an integral role in the economic recovery process by strengthening the housing market.
The government made multiple changes to HARP over the years. In July 2009, it increased the maximum loan-to-value (LTV) ratio that homeowners could have from 105% to 125%. A few years later, the Fed introduced HARP 2.0 when it became clear that too many borrowers couldn’t qualify for the original program.
How Does HARP 2.0 Work?
Unlike HARP 1.0, the updated version of the program had no (LTV) ceiling for individuals with fixed-rate mortgages. So under HARP 2.0, it was possible to qualify for a refinance loan with a LTV ratio above 125%. If you had an adjustable-rate mortgage (ARM), however, you wouldn’t be eligible for the program if your LTV ratio exceeded 105%.
HARP 2.0 streamlined the refinance process by allowing borrowers to replace their existing mortgage loans without getting an appraisal or going through an underwriting process. Plus, it adjusted or waived some fees for homeowners who wanted to reduce their loan terms. Specifically, it reduced risk-based fees (known as loan level price adjustments) to 0% when loan terms lasted for less than 21 years and to 0.75% when loan-terms lasted for at least 21 years.
The last version of HARP also reduced the amount of documents needed to verify whether applicants met the program’s income requirements. A borrower could’ve qualified as long as they had enough savings to pay their mortgage for at least a year.
Thanks to HARP 2.0, homeowners no longer had to work with their original lenders. They might have qualified for a refinance even if they had lender-paid mortgage insurance. If you had private mortgage insurance (PMI), you wouldn’t have needed additional insurance coverage. Furthermore, lenders were off the hook for fraud that took place when the original loans were issued.
Do I Qualify for HARP 2.0?
HARP 2.0 was designed for underwater homeowners, or anyone close to being underwater. This means that your LTV ratio had to be higher than 80% if you wanted to qualify for the program. Either Fannie Mae or Freddie Mac must’ve owned or guaranteed your mortgage and your loan must have been issued and sold to one of the government-sponsored enterprises on or before May 31, 2009.
You would have been ineligible for this program if you had already refinanced through HARP in the past (unless you refinanced a Fannie Mae loan between March and May 2009). It also required that you were current on your mortgage, meaning that you shouldn’t have made any late payments in the past six months. Beyond that, you couldn’t have made more than one late payment over the last year. Under HARP 1.0, borrowers weren’t eligible if they had at least one late payment in the past 12 months.
While there was no minimum credit score for HARP 2.0 applicants at the federal level, your lender could have instituted additional requirements. For borrowers at the time, it was best to shop around until you found a lender with rates and terms that you were comfortable with.
What Happened to HARP 3.0?
HARP 3.0 refers to a proposal that could’ve expand the federal refinancing program to include homeowners without loans backed by Freddie Mac or Fannie Mae. It could also have lowered fees and allowed borrowers to refinance through HARP more than once.
Some lawmakers and politicians, including former President Barack Obama, argue that such a program could save borrowers thousands of dollars. But so far, there hasn’t been any progress toward passing a bill that would introduce HARP 3.0.
HARP 2.0 once helped financially-strapped homeowners with refinancing. The program unfortunately expired on Dec. 31, 2018. For more information, you can visit harp.gov.
If you’re looking for help with your mortgage, but don’t know where to turn next, it might be worth speaking with a financial advisor. These professionals can not only help you in the short-term, but they can also aid you with your long-term financial goals.
Tips for Managing Your Finances
- One of the best ways to get yourself out of financial trouble is to build a comprehensive financial plan. If this style of money management is new to you, SmartAsset’s financial advisor matching tool can pair you with as many as three local advisors who have knowledge about financial planning. To get your matches, simply fill out our short questionnaire that details your personal financial needs.
- A budget is a quick way to get your money under control. By keeping track of what you spend every month, you’ll be able to see where you’re wasting money. To get your budget together, stop by SmartAsset’s budget calculator.
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