Understanding the Home Affordable Refinance Program (HARP)

When the financial crisis hit in 2008, thousands of homeowners across the country suddenly found themselves in a precarious position. The homes they owned all of sudden were worth less than how much they owed on their mortgage.

Combined with mass layoffs that occurred at companies all over, many of these underwater homeowners couldn’t afford to pay their monthly mortgage and were facing foreclosure. 

In response to the building crisis, the Federal Housing Finance Agency created a government-backed refinance program in 2009 called the Home Affordable Refinance Program. 

HARP, which was sometimes referred to as the Obama Refinance Program or the Obama Mortgage, was designed to help underwater homeowners refinance the mortgages they had — sometimes at lower interest rates.

While the HARP program ended at the end of 2018, borrowers still have options to refinance their mortgages if they find themselves underwater on their homes.

HARP Eligibility and Requirements

The HARP program was available only for homeowners that had mortgages that either Fannie Mae or Freddie Mac guaranteed. To qualify for the program, then, homeowners had to have a mortgage from either entity in place before May 31 of 2009.

The government’s goal with the program was to slow down the rate at which mortgages were being foreclosed on, while also helping homeowners who found themselves victims of subprime lending practices.

In addition to having these two types of mortgages, borrowers had to be up-to-date on their mortgage repayments, and the property also had to be in a good condition. Any borrower who vacated their property or had defaulted on their mortgage couldn’t qualify for a HARP refinance.

There were other requirements that borrowers had to meet in order to be eligible for HARP, including the fact that the loan-to-value ratio (LTV) needed to be 80% or more. 

Homeowners with either a first or second mortgage were able to qualify for the program.

Benefits of a HARP Refinance

There were a few different benefits of HARP refinance, all of which provided both short- and long-term advantages. This included lower interest rates, which in turn resulted in a new lower monthly payment.

It also allowed borrowers to convert their loan from an adjustable rate to a fixed rate, which provided long-term cost certainty and, as a result, financial stability. A HARP refinance sometimes even allowed borrowers to shorten the repayment term of their mortgage, from 30 years to 15 years, for example.

The FHFA released a report in March of 2019 that said almost 3.5 million borrowers refinanced using the HARP program, which shows just how popular and beneficial it was.

How to Apply for a HARP Loan

There were a few options that borrowers had to apply for a HARP loan. They could either work with a lender or mortgage broker, and while not all mortgage services participated in the program, most did.

One of the nice parts about the program was that borrowers didn’t need to refinance through the same lender who originated the original mortgage. This gave borrowers plenty of choice in refinancing.

Much like applying for an initial mortgage, lenders required borrowers to provide a lot of information to apply. This includes proof that they fit the parameters of the program, as described above.

To do this, borrowers needed to provide proof of income, have a credit check run and have an appraisal done on the home, which often also included a general inspection to ensure the property was in good condition.

Once the lender had that information in hand, they could process the application and start the underwriting process. When the process was complete, the result was a new mortgage with new terms that defined how much the borrower owed, what the new interest rate and length of the loan were, and what the resulting monthly payments were as well.

HARP Replacement Programs

Once the HARP program came to an end in 2018, both Freddie Mac and Fannie Mae launched new programs intended to help homeowners who had a high LTV ratio getting better terms on their loans. 

The two programs were called the Freddie Mac Enhanced Relief Refinance Mortgage and the Fannie Mae high-LTV refinance option, or HIRO. Both of the programs are similar in terms of their eligibility requirements, though each program has its own rules.

Which program homeowners can apply for depends on which of the agencies owns the loan on your home. There are many benefits of this program, first and foremost the fact that they are designed to help homeowners who have little to no equity in their home gain more favorable loan terms.

High-LTV Refinance Options

The two main high-LTV refinance options start with the LTV on your home to figure out whether you qualify.

The Fannie Mae HIRO plan, for instance, requires that your LTV ratio be as high as 95% for a variable-rate loan or 97% for a loan with a fixed rate. In either case, the dwelling must be a single-family home, and it must be the borrower’s primary residence.

The Freddie Mac program is available for loans that have LTV ratios as high as 95%. It’s a program that supplements the agency’s cash out refinance option. The maximum amount for a mortgage with a variable rate is an LTV ratio of 105%, though there’s no maximum ratio if you have a fixed-rate mortgage.

Both programs require a full appraisal of your home to confirm what the LTV ratio will be, since that ratio is calculated by comparing the value of your home to your total outstanding mortgage amount.

There are instances where your loan application might be able to be underwritten electronically, in which case you could potentially qualify for an appraisal waiver. If this happens, you will save money on closing costs, since the full appraisal won’t be needed.

There are some things about the new mortgage that results from these two programs that you should be aware of. While the programs are designed to give homeowners financial relief, they might require you to pay monthly private mortgage insurance, or PMI.

This monthly payment is in addition to your principal, interest, property taxes and insurance, and PMI can sometimes get expensive. In addition, PMI often does not go away for the life of the mortgage, meaning it’s a long-term, ongoing additional expense.

Refinancing with HARP

When it existed, HARP was a great program the federal government put in place to help homeowners who had underwater mortgages due to the financial crisis of 2008. In addition to potentially lowering the interest rates on the mortgage, HARP helped give some homeowners more favorable overall loan terms.

Now that HARP has ended, there are still refinance programs available to help struggling homeowners who find themselves with high LTV ratios. The Fannie Mae and Freddie Mac programs are two good ones, but can only be used if your mortgage is owned by one of these federal agencies.

Refinance options are available for other federally-backed mortgages, such as VA loans, FHA loans and USDA loans. All of these programs can help borrowers lock in a lower rate, which helps to reduce the monthly payment for the long run.

Explore Your Refinance Options if Your Mortgage is Underwater

The Home Affordable Refinance Program may no longer be available, but it served as the blueprint for many of the home refinance programs that are around today. This includes two programs offered by Freddie Mac and Fannie Mae, as well as others offered by the VA, USDA and FHA.

If you have a conventional mortgage through a private lender that’s not backed by a government agency, you may have options as well.

If you find yourself with an underwater mortgage with a high LTV ratio, it’s important to contact your mortgage servicer as soon as possible to figure out your options. Doing so before you fall behind on your mortgage payments is crucial if you want to qualify for some of the programs that are available.

Refinancing can be a great option for homeowners who are struggling to make their mortgage payments, as it can result in a lower interest rate and better overall terms.