Key Takeaways
- Refinances underwater mortgages with no PMI required.
- For current borrowers with high loan-to-value ratios.
- Enables lower interest rates and fixed-rate conversions.
What is Home Affordable Refinance Program (HARP)?
The Home Affordable Refinance Program (HARP) was a government initiative launched in 2009 to help homeowners refinance their mortgages despite having little or negative equity. It targeted borrowers current on payments but unable to refinance due to declining home values.
HARP aimed to enable refinancing for loans owned or guaranteed by Fannie Mae or Freddie Mac, offering relief to those with high loan-to-value ratios who were otherwise locked out of traditional refinancing options.
Key Characteristics
HARP featured several unique aspects designed to assist eligible homeowners:
- Eligibility: Homeowners needed to be current on mortgage payments with no significant recent delinquencies, and the mortgage had to be backed by Fannie Mae or Freddie Mac.
- High Loan-to-Value Ratios: Unlike typical refinancing, HARP allowed loans with LTV ratios above 100%, accommodating underwater mortgages.
- No Private Mortgage Insurance: Borrowers could refinance without paying PMI even if their LTV was high.
- Mortgage Term Flexibility: Allowed conversion from adjustable-rate or interest-only loans to more stable fixed-rate mortgages, often shortening the loan term.
- Program Evolution: Expanded over time to remove maximum LTV limits and encourage lender participation by shielding them from certain liabilities.
How It Works
HARP enabled eligible borrowers to replace their existing mortgage with a new one under better terms, primarily by allowing refinancing despite negative equity. Your mortgage servicer submits an application to Fannie Mae or Freddie Mac to verify eligibility based on your payment history and loan details.
The program’s removal of traditional LTV caps means you could refinance even when your home's fair value has declined significantly. This process helped lower your monthly payments by securing a lower interest rate or converting variable rates to fixed rates for greater stability.
Examples and Use Cases
HARP was particularly useful in scenarios where homeowners were otherwise locked out of refinancing due to market downturns:
- Homeowners with underwater mortgages: Those owing more than their home’s value benefited from reduced interest rates and improved loan terms.
- Refinancing adjustable-rate mortgages: Borrowers converted to fixed-rate loans to avoid payment shocks.
- Investors in companies like Delta or American Airlines: While not directly related to HARP, managing debt refinancing options can impact broader financial decisions, including investments.
Important Considerations
While HARP provided valuable refinancing opportunities, it required current mortgage status and backing by specific government-sponsored entities. It did not assist borrowers with bad credit or those facing foreclosure.
Since the program ended in 2018, you might explore other refinancing options or consult guides such as best low interest credit cards for managing finances if refinancing is no longer available.
Final Words
HARP provided a valuable refinancing option for homeowners with little or negative equity by lowering payments and offering more stable loan terms. While the program ended in 2018, similar opportunities may arise, so keep an eye on new federal or lender initiatives that could help you refinance.
Frequently Asked Questions
HARP was a federal refinancing program launched in 2009 to help homeowners refinance their mortgages even if their home values had declined, making it difficult to refinance through traditional methods.
Homeowners with mortgages owned or guaranteed by Fannie Mae or Freddie Mac, who were current on their payments, and had little or negative equity in their homes were eligible. The property had to be a primary residence, one-unit second home, or a one-to-four-unit rental property.
HARP allowed borrowers owing more than their home's value to refinance at lower interest rates, reduce monthly payments, convert to fixed-rate mortgages, shorten loan terms, and often avoid mortgage insurance regardless of loan-to-value ratios.
HARP 2.0 removed the cap on loan-to-value ratios for mortgages up to 30 years, allowed borrowers with private mortgage insurance to refinance, and increased lender participation by providing protections against liability for fraud on original loans.
To qualify for HARP, you needed to be current on your mortgage with no 30-day late payments in the past six months and no more than one late payment in the past 12 months.
Most borrowers refinancing through HARP did not have to pay private mortgage insurance, even with high loan-to-value ratios, which was a unique benefit of the program.
HARP was extended through 2016, but it is no longer available for new refinances. Homeowners interested in refinancing should explore other current programs.
By August 2011, nearly 894,000 borrowers had refinanced their mortgages through HARP, helping many reduce payments and stabilize their financial situations.
